Prizes versus Grants

Today’s New York Times mentions my work on the history of prizes and grants:

Back in the 1700s, prizes were a fairly common way to reward innovation. … Eventually, though, prizes began to be replaced by grants that awarded money upfront. Some of this was for good reason. As science became more advanced, scientists often needed to buy expensive equipment and hire a staff before having any chance of making a discovery.

But grants also became popular for a less worthy reason: they made life easier for the government bureaucrats who oversaw them and for the scientists who received them. Robin Hanson, an economist at George Mason University who has studied the history of prizes, points out that they create a lot of uncertainty – about who will receive money and when a government will have to pay it. Grants, on the other hand, allow a patron (and the scientists advising that patron) to choose who gets the money. "Bureaucracies like a steady flow of money, not uncertainty," said Mr. Hanson, who worked as a physicist at NASA before becoming an economist. "But prizes are often more effective if what you want is scientific progress." …

These are the two essential advantages of prizes. They pay for nothing but performance, and they ensure that anyone with a good idea — not just the usual experts — can take a crack at a tough problem. 

Historically, we saw a great change from a situation of more prize-like science funding than grant-like funding, to an almost complete reliance on grant-like funding.  This change was often accomplished by fraud:

In 1831 the founder of the dues-funded British Association for the Advancement of Science announced his plan for prize competitions. Association leaders instead instituted the first British grant system, and most money ended up going repeatedly to the same ten Association insiders. …  In 1820 the will of Baron Montyon endowed two very large annual [French] Academy prizes for "making some industrial process less unhealthy," and for "improving medical science or surgery."  The unprecedented size of Montyon’s bequest emboldened the Academy to obtain royal permission to violate Montyon’s will.

While economists tend to think prizes are a better way to induce innovation, historians of science mostly praise this change, saying "The grant was a much better way of getting more research for the same amount of money."  My research showed that this historical change was predicted by a statistical model, based only on patterns of patronage among eighteenth century scientific societies:

[Comparing] prize-like vs. grant-like funding among eighteenth century scientific societies, [science-focused] societies with non-autocratic, non-local government patrons were especially likely to use grant-like funding.  As these are today’s dominant patrons of basic research, eighteenth century data successfully predicts current patronage forms.

This suggests that the main thing that changed was who was giving out the money.  I speculated that new patrons preferred "grant-like funding to prize-like funding because they were susceptible to distributive pressures from leaders of scientific societies, who preferred the `pork’ of increased discretion over the money that passed through their hands."  Perhaps the social status of powerful individual patrons made them less easily cowed by big-shot scientists demanding grants. 

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  • Carl Shulman

    I agree that prizes are underemployed. I’ve also thought for some time that it would be useful to supplement the grant system with registries (as in wedding registries) of studies to be performed. Using the language of ‘fillers’ and ‘framers’ (http://www.overcomingbias.com/2006/12/fillers_neglect.html), you pay framers to identify needed studies, and then use competitive bidding to have fillers in professional for-profit firms execute them. Some advantages:

    1. This would be a handy vehicle for replication, since important studies can appear multiple times in the registry, with each firm only allowed to bid for one.
    2. Firms could be subjected to reputational tracking and auditing to ensure strong internal controls aimed against data falsification.
    3. Firm scientists would have less incentive to exaggerate results, or to selectively report positive results, than scientists invested in particular hypotheses and with their social status at stake.
    4. Division of labor and economies of scale improving the efficiency with which experiments are conducted by the experimentation firms.

  • http://profile.typekey.com/robinhanson/ Robin Hanson

    Carl, a thoughtful suggestion, though there is the issue of how clearly the filling tasks could be defined.

  • http://www.danieldrezner.com/archives/003129.html Daniel W. Drezner

    I want more prizes

    David Leonhardt has a near-excellent column in the New York Times today on why prizes are 1) A great way to foster innovation, but; 2) far less popular than grants or other compensation schemes: in the 1700s, prizes were a…

  • Carl Shulman

    Task definition can be both decentralized and debiased: funding entities can accept and pay for experimental designs submitted to them from independent scientists, just as they accept grant proposals today, but without the direct connection to implementation. The set of submitted ideas should be improved in several respects over the current set:

    1. Reduced bias towards fancy status-enhancing equipment (fMRIs anyone?).
    2. Reduced bias against against experiments that are boring to run.
    3. Smart academics’ reallocation of time towards experimental design and away from tasks like interviewing the 50th subject in a psychological study.
    4. Scientists designing experiments to be done by others should be less influenced by self-serving biases, and thus more likely to propose replication and measures to prevent falsification/exaggeration. The symmetry=attractiveness idea would have had more difficulty spreading (http://www.overcomingbias.com/2007/01/symmetry_is_not.html) if replication had been simultaneous.

  • http://www.agecon.purdue.edu/staff/masters Will Masters

    Carl’s suggestion is pretty much the model used by Innocentives and other “open innovation” platforms in the corporate sector. Task definition is indeed “decentralized” but it’s hardly unbiased, since rewards are offered only for innovation whose benefits are privately valuable (i.e. free-riders can be excluded, etc.)

    Those interested in philanthropic uses of prize mechanisms might want to check out this proposal:

    http://www.agecon.purdue.edu/prizes

    The system proposed there does not pre-specify a technology, but rather pre-specifies a way to measure technologies’ value, and a sum of money to be paid out in proportion to measured value. This solves a lot of the problems associated with fixed-target prizes.

    What makes this fix possible is having a well-specified measure of something that the donor values: in this case, increases in agricultural production in Africa, to help farmers overcome poverty and malnutrition. These increases are possible to measure, are desired by donors, and could be rewarded in a market-like way.

  • http://profile.typekey.com/markbahner/ Mark Bahner

    Hi,

    I’ve suggested a prize for predictions of global climate change, as an alternative to what is essentially paying the IPCC (Intergovernmental Panel on Climate Change) to lie.

    A method for achieving honest climate predictions

    I’ve also proposed technology prize for developing (non-tokamak) fusion, since tokamak fusion is pretty clearly headed nowhere:

    Fusion technology prizes, October 8, 2006, 20:07

    Mark

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