A Place to Stand

I did an article on historic X-Prizes previously. Well here are edited excerpts from comments on a Spacepolitics discussion on the subject which adds a lot more:

Bill wrote @ June 10th, 2007 at 8:58 am
I worked for Newt in the 90s), but here’s a mid-90s quote from the Speaker:

“We want to explore the use of prizes, which have been used in the West since the late Seventeenth Century and have had a big impact… We want to explore the use of prizes where, if we have a goal we want to achieve, let’s set up a prize and whichever entrepreneur gets there first gets the money.”
Newt Gingrich, 1995

[http://seds.org/xprize/X.html]

Newt was also one of the key figures in saving DC-X in the early 90s [http://www.hq.nasa.gov/pao/History/x-33/facts_5.htm]


Ray wrote @ June 11th, 2007 at 9:59 pm
... there’s a Mars Prize that was won just a few days ago: the $5,000 University Mars Rover prize by the Mars Society.

http://www.marssociety.org/portal/c/urc/frontPage

anonymous wrote @ June 12th, 2007 at 2:35 am
A follow-up post with a more complete list of technology inducement prizes have initiated and/or transformed whole companies and/or industries:

...1775 - Alkali Prize

In 1775, King Louis XVI offered a prize of 2,400 livres to anyone who found a commercially viable artificial process for the production of alkali. Naturally occurring alkali was used in paper, soap, and glass production, but discovery of an artificial process in 1791 by Nicolas Leblanc enabled much greater production and launched the French chemical industry.

1795 - Napoleon’s Food Preservation Prize

In 1795, Napoleon’s Society for the Encouragement of Industry offered a 12,000 franc prize for a method of food preservation to help feed Napoleon’s army. Nicolas Appert devised a solution using champagne bottles in 1809 and was awarded the prize in 1810 on the condition that he publish his methods. The discovery marked the beginning of the canning industry.

1820 - Montyon Prizes

In 1820, the French Royal Academy of Sciences began offering large monetary awards after a private donor established the Montyon Fund for prizes in medicine… In the mid-1800’s, private contributions to the French Royal Academy lead to the establishment of dozens of additional monetary prizes. These included the Jecker Prize, established in 1851 “to accelerate the progress of organic chemistry”… Charles Friedel was among the winners of the Jecker Prize for his now famous Friedel-Crafts reaction.

1823 - Turbine Prize

In 1823 the French Society for the Encouragement of Industry offered a prize of 6,000 francs for the development of a large-scale commercial hydraulic turbine. The prize was won in 1827 by then 25 year-old Benoit Fourneyron. His turbine was placed in the public domain and was immediately implemented across Europe and helped to power the burgeoning New England textile industry.

1895 - Chicago Times-Herald Prize for Motors

In 1895, the Chicago Times-Herald offered a $5000 Prize for Motors to be awarded for the development of “practicable, self propelling road carriages,” as determined by a 54-mile race. The winner was J. Frank Duryea. Even more than the prize money, the publicity generated did much to promote investment in automotive innovation.

1903 - Deutsch-Archdeacon Prize

In 1903, French Aero Club members Earnest Archdeacon and Henry Deutsch de la Meurthe offered a prize of 50,000 francs to the first pilot to fly a heavier-than-air vehicle in a 1km circular course. Henry Farman won the prize in 1907, and went on to become a commercial airplane manufacturer.

1909 - Rheims Airshow Prizes

Also in 1909, several prizes for speed, distance, and altitude were offered at the Rheims Airshow. Glenn Curtiss won two prizes for speed, including the Gordon Bennett Prize, and launched an airplane manufacturing business with his winnings.

...2001 - Innocentive

The now independent company InnoCentive was founded by Eli Lilly in 2001 as a registry for scientific innovation prizes. Companies post specific scientific needs, a prize amount, and a deadline. The innovator providing the best solution is awarded the prize. To date, over 80 prizes have been awarded.

2005 - Grainger Challenges

In 2005, the National Academy of Engineering announced the first in a planned series of Grainger Challenges, offering a $1 million first prize and $200 and $100 thousand second and third prizes for the development of economical filtration devices for the removal or arsenic from well water in developing countries. Over 70 entries were submitted, and Abul Hussan was announced the winner in 2007 for his SONO filter that has already been implemented to provide safe drinking water to 400,000 people.

For those advocating lunar/asteroid sample return prizes, these two may be of interest:

1991 - FCC Pioneer Preferences

In 1991, the U.S. Federal Communications Commission (FCC) established the Pioneer Preference Program, offering a reward of preferential licensing (worth many millions of dollars) for the development of new spectrum-using communications services and technologies. Five companies received the reward before the program ended in 1997, and a sixth, Qualcomm, was granted the award for its development of digital wireless technology after a legal appeal.

2000 - Goldcorp Challenge

Also in 2000, the gold mining company Goldcorp introduced the Goldcorp Challenge: the company released all of its geological data on an underperforming Canadian mine, and offered $575,000 in prizes including a grand prize of $105,000 for the most accurate predictions of where to dig to find the most gold. Over 1,400 people participated from 50 countries, with 80% of 110 identified digging sites yielding significant quantities of gold. A partnership of two Australian companies using computer fractal technology won the grand prize in 2001.

The text above is excerpted from http://www.keionline.org/index.php?option=com_content&task=view&id=29.

Again, we shouldn’t oversell prizes. For example, there are a few failed prizes listed at the website above.

But neither should we make false claims constraining the limits of inducement prizes. History clearly shows that they can be a powerful tool for innovation.

Thomas Matula wrote @ June 12th, 2007 at 2:41 pm
Yes there were many failures, most of which are excluded from lists like this one, which is why prizes were replaced by grants in the 20th Century as a way for advancing technology. For example the website misses the Longitude Prize offered by King Phillip III in 1598 and a similar one offered by the Dutch in the same year. But then the technology for clock making was not advanced enough for the conditions of the prize. Even the Longitude Prize offered in 1714 took over 60 years to win and the inventor had to wait decades for payment while other clockmakers stole his intellectual property.

And from that same website you cited.

http://www.keionline.org/index.php?option=com_content&task=view&id=29

some other examples of prizes that advanced technology.

And we know how computer innovation was driven in the 1980’s and 1990’s by the Fredkin Prize.

[[[1980 - Fredkin Prize

In 1980, computer scientist Edward Fredkin offered a $100,000 prize for the first computer chess program to beat a reigning world chess champion. IBM’s Deep Blue Chess team won the prize in 1996 when their machine defeated Gary Kasparov.]]]

And even the successful Alkali Prize shows two of the problems with prizes – intellectual property ownership and getting the money you won.

[[[1775 - Alkali Prize

In 1775, King Louis XVI offered a prize of 2,400 livres to anyone who found a commercially viable artificial process for the production of alkali. Naturally occurring alkali was used in paper, soap, and glass production, but discovery of an artificial process in 1791 by Nicolas Leblanc enabled much greater production and launched the French chemical industry. Unfortunately for Leblanc, the French Revolution destroyed his alkali factory and prevented the King from giving Leblanc his award. Leblanc committed suicide in 1806, and it was not until 1855 that his heirs received the prize payment from the French government.]]]

Industry stole his invention, without compensation, while the King lost his head before paying the prize.

Same with the famous Napoleon prize for food preservation.

[[[1795 - Napoleon's Food Preservation Prize

In 1795, Napoleon’s Society for the Encouragement of Industry offered a 12,000 franc prize for a method of food preservation to help feed Napoleon’s army. Nicolas Appert devised a solution using champagne bottles in 1809 and was awarded the prize in 1810 on the condition that he publish his methods. The discovery marked the beginning of the canning industry.]]]

I expect the patent rights would have been worth far more the 12,000 francs, even in 1810.

Actually there is a very solid literature in economics on prizes and their role in innovation strategies. I will provide a reading list below tomorrow for those interested in actually learning something about prizes and technological development beyond the current hype.

However the Senate already knows the real advantages and limitations of prizes as Molly Macauley, a Ph.D. in economists who works for the group Resources for the Future testified on it at the Senate hearings on the Centennial prizes.

A copy of her testimony is located here.

http://www.rff.org/Documents/RFF_CTs_04_macauley.pdf

It’s a pity space advocates ignore it. Instead, they believe like the Soviet economists believed, that prizes are the ultimate solution and a substitute for markets and ROI. The results of Soviet economic policy show the risks of basing a national technical innovation policy on prizes as many libertarians propose…

Also from the website http://www.keionline.org/index.php?option=com_content&task=view&id=29) to a number of academic and political papers on the economics of prizes (in the “Papers” section on the right side).

...Here’s an old Mars Society document that has a section on a “Mars Prize” about the size of the one we’re discussing. The prize part is on pages 10-11. You can see that it proposes a few smaller prizes to develop “building blocks” for the big prize.

http://chapters.marssociety.org/usa/dc/pdfSRC/BriefingBook2001.pdf

Even the smallest prize in this proposal is huge compared to the prizes that are actually out or trying to get funding.

Anon June 15th

It’s hard to find examples on either side of the Atlantic where European-style government loan subsidies have produced an independent, profitable, going concern, nevertheless an independent, market-leading competitor. Governments are notoriously bad at picking the right private sector solution; the government loan subsidies choke off much greater amounts of private sector investment and competition; and it’s very difficult to wean companies off government loan subsidies once they become reliant on the low cost of capital.

Thomas Matula wrote @ June 18th, 2007 at 6:30 pm
Even adjusted for inflation, the $10 million X-Prize was probably the largest prize in history and is clearing approaching the limit for practical prizes. I am being generous when I place that limit at a $100 million. And that limit would only work if there are major markets waiting for the winning entry, and even for the also rans.

Thomas Matula wrote @ June 18th, 2007 at 6:41 pm
Al,

Exactly. The Russians invested directly in the development of new rocket engines. They did not offer prizes for them.

Thomas Matula wrote @ June 18th, 2007 at 6:41 pm
...Here is the list of articles I indicated;

Arrow, Kenneth J. (1969). ‘Classificatory Notes on the Production and Transmission of Technological Knowledge,’ American Economic Review, 59: 29-35.

Che, Yeon-Koo, and Ian Gale. 2003. Optimal design of research contests. American EconomicReview 93 (3):646-671.

Crawford, Elisabeth 1980. The prize system of the academy of sciences, 1850-1914. In Robert Fox and George Weisz, editors, The organization of science and technology in France 1808-1914, pages 283–307. Cambridge University Press, Cambridge.

Crosland, Maurice 1979. From prizes to grants in the support of scientific research in France in the nineteenth century: The montyon legacy. Minerva, 17(3):355–380.

Crosland, Maurice and Antonio Galvez, 1989. The emergence of research grants within the prize system of the french academy of sciences, 1795-1914. Social Studies of Science, 19:71–100.

Hanson, Robin Hanson 1998. Patterns of Patronage:
Why Grants Won Over Prizes in Science. http://hanson.gmu.edu/whygrant.pdf

Harry Paul. The trouble with prizes. In From Knowledge to Power, The Rise of the Science Empire in France, 1860-1939, pages 288–293. Cambridge University Press, 1985.

Llobet, Gerard, Hugo Hopenhayn, and Matthew Mitchell 2000. Rewarding Sequential Innovators: Prizes, Patents and Buyouts, Federal Reserve Bank of Minneapolis Research Department Staff Report 273

Macauley, Molly K. 2005. Advantages and disadvantages of prizes in a portfolio of financial incentives for space activities. Space Policy 21 (1):29-39.

Moldovanu, Benny, and Aner Sela. 2001. The optimal allocation of prizes in contests. American Economic Review 91 (3):542-558.

Nalebuff, Barry J., and Joseph E. Stiglitz. 1983. Prizes and incentives: Towards a general theory of compensation and competition. Bell Journal of Economics 14 (1):21-43.

National Academy of Engineering (NAE). 1999. Concerning federally sponsored inducement prizes in engineering and science. Washington, DC. http://newton.nap.edu/catalog/9724.html.

Shavell, Steven, and Tanguy van Ypersele. 1999. Rewards versus intellectual property rights. Cambridge, MA: National Bureau of Economic Research.

Jack Sommer. A radical proposal for reorganizing research support: Lotteries, prizes. The Scientist, pages 11,13,17, June 10 1991.

Taylor, Curtis R. 1995. Digging for carrots: An analysis of research tournaments. American Economic Review 85 (4):872-890.

Wright, Brian D. 1983. The economics of invention incentives: Patents, prizes, and research contracts. American Economic Review 73 (4):691-707.

The research is clear on the conditions for successful prizes. It must be a task a group of individuals are able to accomplish with self-funding, or a single patron. If a firm it must fall under their high risk R&D budget. This is the key limit on the pool of applicants and the smaller the pool of applicants the less likely it is a prize will be won.

Given how close the x-prize came to failing, only a single team was able to raise the funds to make an attempt a bare 3 months before the prize vanished, shows how critical this is. And it took that team 2.5 times the amount of the prize to succeed.

Other factors include the promise of commercial markets following the prize. The high start-up cost of Virgin Galactic, some $275 million and counting, makes it clear that even if some of the other teams had won they would not have had the deep pockets to take their entry to market as Burt Rutan/ Paul Allen were able to do.

And this leads to a third guideline. Structure the rules to favor an entry that is competitive in the marketplace after the contest. The classic failure in this regard was Richard Feynman nanotech prize of 1959 of $1000 to build a motor 1/64 of an inch wide. The winder simply used existing jewelry tools to make it creating no technology of value to nanotech.

In terms of the lunar prize below, or the Mars prize, no follow-on markets exists to sustain the technology, so likely solutions would be one off stunts, not major breakthroughs. So there would be even less incentives then the X-prize.

anon V-Prize for transatlantic sub orbital with "spaceports" http://spaceports.blogspot.com/2007/06/transatlantic-v-prize-being-organized.html
http://www.v-prize.com/

Caltech alumnus wrote @ June 19th, 2007 at 12:19 pm
Dr. Matula,

You are mistaken. By classifying it as a “failure” you are leaping to the conclusion that Feynman’s objective was to develop new technology or to build a nanotech industry.

This motor has been on prominent display, for many years, in the physics building where Dr. Feynman used to work. I saw the display in the early 1980s when I was a student, and Dr. Feynman was still alive, and I believe it was there long before I ever set foot on campus.

If Feynman’s intention had been to develop “new technology” or to kick-start the nanotech industry, it would have been quite easy for someone of his stature to persuade somebody to fund another prize, of much more challenge. All he had to was ask, and people would have jumped at the chance to fund such a prize. The fact that he did not strongly suggests that he considered the prize to be a success.

Thomas Matula wrote @ June 19th, 2007 at 2:17 pm
CalTech Alumni

Richard Feynman offered two prizes for $1,000 of his own money with the hope of jump starting nanotechnology.

The first was for an electric motor. The full story is here.
http://news.bbc.co.uk/2/hi/science/nature/3785509.stm
Tuesday, 8 June, 2004, 11:23 GMT 12:23 UK
Small world’s big achievement
By Roland Pease
BBC radio science

Some quotes:
[[[Richard Feynman had specified a working electric motor no more than 1/64th of an inch on a side, confidently expecting making such a device would take an entirely new approach to engineering. Bill McLellan proved him wrong.

"He'd seen a lot of cranks come in with motors who didn't understand the challenge and I brought in a big box, and he said 'Uh-oh, here's another one of them'. And then I opened my wooden box and there was my microscope, and he said 'Oh! Nobody else brought a microscope!'".

But Feynman had to agree, the motor met his specification.]]]

And

[[["Feynman's disappointment was he didn't get the new method," says McLellan.]]]

So Richard Feynman himself regarded it as a failure.

So in summation the verdict of the literature and my statement that Richard Feynman prize was a failure stands. Indeed as indicated he felt that way himself.

And it is a lesson to be careful how you state the conditions of the prize.

benny wrote @ August 31st, 2007 at 1:59 am
It may be worth pointing out that a unique large prize is optimal only if cost is linear in effort. If costs raise quicker (say at a quadratic rate) then several prizes may be optimal. A good example is important architectural contests that offer 3-5 prizes, sometimes quite large. This is all spelled out in “The optimal allocation of prizes in contests” by Moldovanu and Sela, published in the American Economic Review, 2001

My comment - I don’t agree that large prizes are necessarily not going to work. Yes they would be beyond the guy & his brother teams (the Wrights & Rutans) but Exxon might well decide that an extra $20 bn on the ledgers was enough to make something like an atomic spaceship capable of reaching not just Mars but other places worthwhile. Though I do agree that cutting it into a lot of smaller prizes for steps along the way might work better.

In any case what is the downside? Offer $20 bn for the first Mars landing, if it is American & the Chinese get there first - no payout & the government still has the $20 bn. Perhaps a lot of people saying we should have put up $40 bn & let a small bank fail but the economy is not worse off than if no prize had been offered & the Chinese still got there first.

Equally this is not a competitor with NASA. Nasa get $18 bn & would want much more for a Mars ship but they get this annually. A $20 bn prize would probably take 15-20 years to be won & so is amortised over that period & government can certainly afford $1 bn a year or less depending on what interest rate is applied.

Equally whatever Feynman may have felt if you say not creating an entire new industry for an investment of $1,000 is a failure you have pretty tough success standards.

In the same way an X-Prize for getting various lengths & strengths of nanotube might have a much more innovative effect than letting much of the universe’s wealth go to whoever makes one 31,000 miles long & has a space elevator

My feeling is that the reason X-Prizes aren’t the normal way of doing things is because most government expenditure isn’t to achieve things but, as suggested above, to pay off political favours & provide permanent jobs to public employees. Cynical I know.

UPDATE Looking through Sobel's book Longitude I found a mention of the early Spanish Longitude Prize & a similar Dutch one which were classed as a failure because they werem't won. There is some backstory. Galilleo put forward a method of timekeeping making use of the timing of the orbits of the moons of Jupiter but it was judged, correctly, as unusable from the rolling deck of a ship. He did nevertheless get a gold chain from the Dutch. However this did work on land & where there was enough time for observation & thus directly created land maps resembling modern ones. Thus while a failure in its set objective & thus costing Spain nothing, it was actually pretty successful. This is an example of how good science almost always pays off even if serindipitously. In these terms it is remarkable how few of the prizes have failed to achieve anything & even those ones have been worth the money - ie zero.