INNOVATION INDUCEMENT PRIZES

AT THE NATIONAL SCIENCE FOUNDATION

Committee on the Design of an NSF Innovation Prize

Board on Science, Technology, and Economic Policy

Policy and Global Affairs

NATIONAL RESEARCH COUNCIL OF THE NATIONAL ACADEMIES

THE NATIONAL ACADEMIES PRESS

Washington, D.C.
www.nap.edu



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Innovation Inducement Prizes: At the National Science Foundation INNOVATION INDUCEMENT PRIZES AT THE NATIONAL SCIENCE FOUNDATION Committee on the Design of an NSF Innovation Prize Board on Science, Technology, and Economic Policy Policy and Global Affairs NATIONAL RESEARCH COUNCIL OF THE NATIONAL ACADEMIES THE NATIONAL ACADEMIES PRESS Washington, D.C. www.nap.edu

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Innovation Inducement Prizes: At the National Science Foundation THE NATIONAL ACADEMIES 500 FIFTH STREET, N.W. Washington, D.C. 20001 NOTICE: The project that is the subject of this report was approved by the Governing Board of the National Research Council, whose members are drawn from the councils of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The members of the committee responsible for the report were chosen for their special competences and with regard for appropriate balance. This study was supported by Contract No. OIA-0629535 between the National Academies and the National Science Foundation. Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the views of the agency that provided support for the project. International Standard Book Number-13: 978-0-309-10465-4 International Standard Book Number-10: 0-309-10465-3 A PDF version is available at http://www.nap.edu Limited copies are available from: Board on Science, Technology, and Economic Policy National Research Council 500 Fifth Street, N.W., Keck Center 574, Washington, D.C. 20001 Phone: (202) 334-2200 Fax: (202) 334-1505 E-mail: step@nas.edu Copyright 2007 by the National Academy of Sciences. All rights reserved. Printed in the United States of America

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Innovation Inducement Prizes: At the National Science Foundation THE NATIONAL ACADEMIES Advisers to the Nation on Science, Engineering, and Medicine The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. Upon the authority of the charter granted to it by the Congress in 1863, the Academy has a mandate that requires it to advise the federal government on scientific and technical matters. Dr. Ralph J. Cicerone is president of the National Academy of Sciences. The National Academy of Engineering was established in 1964, under the charter of the National Academy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievements of engineers. Dr. Wm. A. Wulf is president of the National Academy of Engineering. The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examination of policy matters pertaining to the health of the public. The Institute acts under the responsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government and, upon its own initiative, to identify issues of medical care, research, and education. Dr. Harvey V. Fineberg is president of the Institute of Medicine. The National Research Council was organized by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academy’s purposes of furthering knowledge and advising the federal government. Functioning in accordance with general policies determined by the Academy, the Council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in providing services to the government, the public, and the scientific and engineering communities. The Council is administered jointly by both Academies and the Institute of Medicine. Dr. Ralph J. Cicerone and Dr. Wm. A. Wulf are chair and vice chair, respectively, of the National Research Council. www.national-academies.org

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Innovation Inducement Prizes: At the National Science Foundation COMMITTEE ON THE DESIGN ON AN NSF INNOVATION PRIZE MARK B. MYERS, Chair, Senior Vice President, Science and Technology, Xerox Corporation (retired) ERICH BLOCH, Principal, The Washington Advisory Group STUART I. FELDMAN, Vice President, IBM MERTON C. FLEMINGS, Professor of Materials Science and Engineering, Director, Lemelson-MIT Program, Massachusetts Institute of Technology CLAIRE GMACHL, Assistant Professor of Electrical Engineering and Director, Mid-InfraRed Technologies for Health Care (MIRTHE), Princeton University THOMAS A. KALIL, Special Assistant to the Chancellor for Science and Technology University of California, Berkeley DAVIS MASTEN, Prinicpal, Cheskin Associates Inc. KAREN E. NELSON, Investigator, The Institute for Genomic Research (TIGR) RICHARD G. NEWELL, Senior Fellow, Resources for the Future PETER M. RENTZEPIS, Presidential Chair and Professor of Chemistry, School of Physical Sciences, University of California, Irvine SUZANNE SCOTCHMER, Professor of Economics and Public Policy, University of California, Berkeley MARGARET STEINBUGLER, Manager, Transportation Fuel Cell Product Development, UTC Fuel Cells Staff STEPHEN A. MERRILL, Study Director CHRISTOPHER T. HILL, Consultant, George Mason University PROCTOR REID, Director, Program Office, National Academy of Engineering BENJAMIN ROBERTS, Christine Mirzayan Science and Technology Policy Graduate Fellow, Summer 2006 MAHENDRA SHUNMOOGAM, Senior Program Assistant

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Innovation Inducement Prizes: At the National Science Foundation BOARD ON SCIENCE, TECHNOLOGY, AND ECONOMIC POLICY DALE W. JORGENSON, Chair, Samuel W. Morris University Professor, Harvard University TIMOTHY F. BRESNAHAN, Landau Professor in Technology and the Economy, Stanford University LEWIS W. COLEMAN, President, DreamWorks Animation KENNETH S. FLAMM, Dean Rusk Chair in International Affairs, Lyndon B. Johnson School of Public Affairs, University of Texas, Austin MARY L. GOOD, Donaghey University Professor and Dean Donaghey College of Information Science and Systems Engineering (DCISSE), University of Arkansas, Little Rock AMO HOUGHTON, Former Member of Congress DAVID T. MORGENTHALER, Founding Partner, Morgenthaler Ventures JOSEPH P. NEWHOUSE, John D. MacArthur Professor of Health Policy Management Harvard Medical School, Harvard University EDWARD E. PENHOET, President, Gordon and Betty Moore Foundation ARATI PRABHAKAR, General Partner, U. S. Venture Partners WILLIAM J. RADUCHEL, Independent Director and Investor JACK W. SCHULER, Chairman, Ventana Medical Systems Inc. SUZANNE SCOTCHMER, Professor of Economics and Public Policy, University of California, Berkeley Staff STEPHEN A. MERRILL, Executive Director CHARLES W. WESSNER, Associate Director SUJAI J. SHIVAKUMAR, Senior Program Officer DAVID E. DIERKSHEIDE, Program Officer CYNTHIA GETNER, Financial Associate JEFFREY C. McCULLOUGH, Program Associate MAHENDRA SHUNMOOGAM, Senior Program Assistant

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Innovation Inducement Prizes: At the National Science Foundation Preface and Acknowledgments The FY 2006 Science, State, Justice, Commerce, and Related Agencies Appropriations Act (Public Law 109-108) directed the National Science Foundation (NSF) to use available funds for “innovation inducement prizes.” Following guidance in the accompanying House Report 109-118, the agency in June 2006 arranged with the National Academies’ Science, Technology, and Economic Policy (STEP) Board to conduct a fast-track study with the following objectives: [P]ropose a plan for administering prizes to individuals or teams that achieve novel solutions to specified social or research needs or capitalize on recognized research opportunities. Evaluate the goals that could be served by such a competition. Propose areas of basic or applied research that would be suitable for a prize competition. Address other issues of design including financial award, rules framework, administration, and unintended consequences that could facilitate or hinder achieving the goals. To address this task the National Academies assembled a committee composed of experts in private sector technology management, publicly sponsored research, public policy and administration, marketing, and economics. The two economists on the panel have had a long-standing interest in the strengths and limitations of the prize mechanism and contributed to the academic literature on the subject. The committee included experts in several scientific and engineering disciplines, including molecular biology, materials, computer science and electrical engineering, and optics. Most of these investigators are or have been beneficiaries of

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Innovation Inducement Prizes: At the National Science Foundation NSF research support at one time or another. A former director of the NSF and a former White House National Economic Council official also served on the panel. Both played key roles in a 1999 National Academy of Engineering (NAE) workshop that led to an important endorsement of prizes as an innovation policy tool, the former as chair of the steering committee, the latter in commissioning the activity. The committee was fortunate to have the advice and drafting assistance of Christopher T. Hill, George Mason University professor of technology and public policy, and Proctor Reid, director of the NAE Program Office. We are grateful to all of these contributors to this report. In the three and one-half months between its appointment and the submission of its report to external review the committee held two two-day meetings, one incorporating a public session with presentations by the following: Arden L. Bement Jr., director, NSF; Ken Davidian, director, NASA Centennial Challenges; Ben Shelef, Spaceward Foundation; and Peter Diamandis, president, X-Prize Foundation. Project staff interviewed key staff members of the relevant appropriations and authorization committees and a number of other people with practical experience with prizes and familiarity with NSF’s missions, traditions, and culture. The academic literature on prizes was, of course, thoroughly reviewed. Nevertheless, because of the limited empirical base for conclusions about what circumstances are best suited for the use of prize contests to promote innovation, the committee had to rely on collective judgments for many of its conclusions and recommendations. This report has been reviewed in draft form by individuals chosen for their diverse perspectives and technical expertise, in accordance with procedures approved by the National Academies Report Review Committee. The purpose of this independent review is to provide candid and critical comments that will assist the institution in making its published report as sound as possible and to ensure that the report meets institutional standards for objectivity, evidence, and responsiveness to the study charge. The review comments and draft manuscript remain confidential to protect the integrity of the process. We wish to thank the following individuals for their review of this report: MRC Greenwood, University of California, Santa Cruz; Rebecca Henderson, Massachusetts Institute of Technology; Frank Huband, American Society for Engineering Education; Dean Kamen, DEKA Research & Development Corporation; Paul Kaminski, Technovation Inc.; Ron Kurjanowicz, DARPA; and Patrick Windham, Independent Consultant.

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Innovation Inducement Prizes: At the National Science Foundation Although the reviewers listed above have provided many constructive comments and suggestions, they were not asked to endorse the conclusions or recommendations, nor did they see the final draft of the report before its release. Responsibility for the final content of this report rests entirely with the authoring committee and the institution. Mark B. Myers, Chair Stephen A. Merrill, Study Director

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Innovation Inducement Prizes: At the National Science Foundation Contents     SUMMARY   1 1   PRIZES IN THE NATIONAL INNOVATION SYSTEM   9      Prizes in Historical Context,   9      Strengths and Limitations of Innovation Inducement Prizes,   11      NSF Engagement in Innovation Inducement Prizes,   14 2   AN EXPERIMENTAL INNOVATION INDUCEMENT PRIZE PROGRAM AT NSF   18      Overview of an Experimental Prize Program,   18      Administration and Design Issues,   20      “First-past-the-post” and “Best-in-class” Contests,   21      NSF’s Role in Program Administration and Funding,   23      Role of Non-NSF Entities in Program Administration and Funding,   25      Selection of Prize Topics, Goals, and Objectives,   28      Inducement Prize Contest Rules,   28      Administrative Rules Applicable to All Contests,   29      Contest-specific Rules,   34      Awarding Innovation Inducement Prizes,   38      Evaluating the Innovation Inducement Prize Program,   38

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Innovation Inducement Prizes: At the National Science Foundation 3   SELECTING PRIZE TOPICS AND IMPLEMENTING EARLY PRIZE CONTESTS   40      Processes for Identifying Prize Topics,   40      Criteria for Selection of Prize Topics,   45      Criteria Related to Government Encouragement of Innovation,   45      Criteria Related to the Use of the Inducement Prize Mechanism,   45      Criteria Related to Broad Outreach and Engagement,   46      Criteria Related to Political and Social Constraints,   46      Criteria Related to NSF’s Involvement,   46      Conclusion,   47     APPENDIXES          A  Comparison of Recent Prize Competitions   51      B  Committee and Staff Biographies   53