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Sunday, July 01, 2012

X-Prizes - "do not provide subsidies to rent-seekers, and they entice imaginative thinking"

  In correspondence the economist Eben Wilson, fellow of the Adam Smith Institue and a leader of the Taxpayer's Alliance, gave me this description of the use of prizes rather than traditional government spending which sums up the difference concisely and methodologically. 
they do not provide subsidies to rent-seekers, and they entice imaginative thinking - very much support the idea of using them more.
  Imaginative thinking is obvious. As Freeman Dyson pointed out the US government gave a grant of $50,000 to a respected and worthy scientist to develop a flying machine and he failed. The Wright Brothers did it on a budget of $500. I cannot think of any way a properly run non-bureaucratic grant system would have identified the Wrights as sensible recipients of grants but having had the imaginative breakthrough of aerilons they would certainly have been encouraged by a prize of that size.

  "Rent seeking" is a term in economics.
"Rent seeking” is one of the most important insights in the last fifty years of economics and, unfortunately, one of the most inappropriately labeled. Gordon Tullock originated the idea in 1967, and Anne Krueger introduced the label in 1974. The idea is simple but powerful. People are said to seek rents when they try to obtain benefits for themselves through the political arena. They typically do so by getting a subsidy for a good they produce or for being in a particular class of people, by getting a tariff on a good they produce, or by getting a special regulation that hampers their competitors.
   Rent seeking, including government workers getting better and/or more employment security, pensions etc. than is available in a free market is recognised as a, possibly the, major cause of government wastefulness. Virtually nobody defends it in principle though many defend their own instances as special cases.

  Thus by showing prizes as inimical to rent seeking & and even more inimical to new instances of rent seeking not yet established (and thus not having their own lobbying constituency) I believe Mr Wilson has demolished most possible arguments against prizes. Although the only occasion actual arguments have been put against them come, fairly tepidly, from this NASA report, which nonetheless endorses the concept.
prizes do not necessarily further these goals that NASA has frequently set forth as success measures in its R&D policy:
increase the number of academic researchers;
increase the number of scientists and engineers;
create jobs;
influence political support by way of job creation;
broaden the participation of traditionally underrepresented groups in science and technology; and
prop up a particular supplier or group of suppliers to ensure choice (say, to ensure that a range of capacities is available in space transportation by dividing business among companies that offer different classes of vehicle lift)
  All of these are example of government subsidy of rent seekers, whether they be scientific groups, minority groups or manufacturers with uneconomic products.

    My thanks for putting the case in such a concise and economically unarguable form

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