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Monday, July 26, 2010

X Prizes: Effectively Producing Technological Innovation
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Despite recent setbacks, now that BP's efforts to contain the Gulf oil spill have become more successful, focus is shifting to clean-up efforts. The best way to generate innovative, effective clean-up methods is to offer an X Prize for developing such a solution.

The X Prize Foundation awards X Prizes of $10 million or greater for specific technological breakthroughs intended to benefit humanity. The organization is considering a competition "to incentivize the development of rapidly-deployable methods for the clean-up of crude oil along our coastlines and within our oceans."

While not finalized yet, this idea is far more likely to yield working results than the 112,000 ideas sent to BP through its own submission process. In BP's case, there is neither an incentive nor a well-framed challenge to interest researchers.

An incentivized competition is, on the other hand, often far superior to traditional research grants and after-the-fact prizes. Breakthroughs in navigation, chemical engineering, aviation and autonomous vehicle navigation have been driven by and, in turn, inspired by competitions like the X Prize.

One of the first such competitions, and the inspiration for the X Prize Foundation, was the Orteig Prize, awarded in 1927 to Charles Lindbergh for the first nonstop flight between New York City and Paris. Nine teams invested $400,000 in pursuing this $25,000 prize. This was just one of the hundreds of aviation prizes that encouraged the advancement of aircraft technology between 1905 and 1935. The first prize awarded by the X Prize Foundation was the Ansari X Prize, awarded to Burt Rutan in 2004 for building the first private manned vehicle to reach space.

Public and private organizations have traditionally encouraged research and development in two ways: (1) awarding prizes for past achievements, and (2) allocating funding for future research in the form of research grants. X Prizes, by contrast, are based on research teams reaching an objective finish line. As such, there are several reasons that such prizes make sense for donors:

First, X Prizes have a higher degree of public recognition in all three stages of existence: prize offering, work progressing, and final awarding. This notoriety motivates research teams and the institutions that they represent in ways that other methods cannot. In comparison, Nobel prizes in the hard sciences garner far less recognition for researchers in the first two stages. It is not until the award ceremony that the winner gains widespread appreciation, and all other efforts considered by the selection committee fail to garner significant media attention.

X Prizes also have far more participants, bringing more minds to bear on the problem — including many sharp innovators who may have not previously been aware of the problem. Multiple teams are assembled rather than the conventional situation in which only one team receives a research grant to pursue a project.

X Prizes also drive more investment toward solving the problem. Because there is a potential for colossal payoffs and significant non-monetary rewards (press attention, potential business investors, etc.) even for the unsuccessful, more researchers participate in the innovation process than would otherwise do so. Even though some researchers pursue research for personal or altruistic reasons, monetary rewards are most easily incentivized by contest designers.

Lastly, research that is typically considered too high risk to be funded by research grants can be funded through an X Prize. This type of funding is effective because even though only the winners receive monetary compensation for their efforts, there are visible benefits for the research teams with minor successes.

For these reasons and under these conditions, prizes tend to produce better results and more efficiently drive researchers towards an objective finish line. Incentivized competition makes the most sense when there is a greater likelihood that these sentiments will pervade the contest process.

Furthermore, judgments on these matters are generally best made by a third party that is: (1) experienced in making such decisions, and (2) believes that it, as well as the society of which it is an element, has a stake in the best possible outcome. For a problem like the Gulf oil spill, rather than common modes of research, a well-developed X Prize will lead to the best solution being developed the most quickly.

In this particular instance, moreover, an 'X Prize' for clean-up of the Gulf oil spill should:

  • Offer a reward of equal or greater value to past prizes awarded by the Foundation to entice the most talented researchers to participate;
  • Advertise the competition through outlets most likely to reach people who are leading experts in the field and those people who may not have already known about the problem or been incentivized to research a solution;
  • Take measures to ensure that the efforts of leading researchers, throughout the entire period of the competition, are well publicized;
  • Create a realistic end date for submissions considering the timeliness of the problem and the needs of researchers; and
  • Have sufficient personnel on staff to appropriately evaluate each team's submission.

Given knowledge of existing cleanup methods, the costs to properly fund such an endeavor, and the lack of knowledge of how to do so adequately, this X Prize is a worthwhile investment for the future and for all parties affected by the oil spill. There are also a myriad of financial and ecological benefits and the methods discovered could have other uses beyond cleaning up this oil spill.

The use of X Prize-like private funding to encourage research, although often overlooked in terms of its prevalence and effectiveness, should therefore continue to play an increasingly important role in solving problems faced by humanity. As such, because X Prize competitions have proven to be a viable means of encouraging far-sweeping technological developments, donors should allocate their funds to the X Prize for developing a clean-up solution for the Gulf oil spill.

Private bodies can, and should, tackle this public problem. Companies that could benefit most from the development of better methods to clean-up oil spills, like BP, should be heavily encouraged to donate most of the purse for such a contest. Because, in all likelihood, there will be another oil spill in the future and it could, realistically, happen to any company, all of the firms in the industry have much to gain from funding this X Prize.

posted by Jeff Levy @ 12:34 PM | Economics , Innovation

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