Innovation Inducement Prizes: Connecting Research to Policy

Innovation inducement prizes have been used for centuries. In the United States, a recent federal policy change—the America COMPETES Reauthorization Act of 2010—clarified and simplified a path by which all federal agencies can offer innovation inducement prizes, thus intensifying interest in how government agencies can most effectively design and apply such prizes. This paper aims to review and synthesize the academic literature on innovation inducement prizes, to clarify what has been learned that is relevant to current policy discussions, and to highlight unresolved questions that would be fruitful areas for future academic research and policy experimentation. Relative to the existing literature, this paper aims to bridge two gaps. First, I synthesize the academic literature in this area with an eye toward drawing lessons for the types of innovation inducement prizes under consideration by federal agencies under the America COMPETES Reauthorization Act. Second, I discuss the problem of how to evaluate the success or failure of innovation inducement prizes, arguing that careful empirical evaluations of innovation inducement prizes are needed in order to provide guidance to federal agencies (and others) on how to most effectively apply and design innovation inducement prizes.