Grand Innovation Prizes: A theoretical, normative, and empirical evaluation

This paper provides a systematic examination of the use of a Grand Innovation Prize (GIP) in action – the Progressive Automotive Insurance X PRIZE – a $10 million prize for a highly efficient vehicle. Following a mechanism design approach we define three key dimensions for GIP evaluation: objectives, design, and performance, where prize design includes ex ante specifications, ex ante incentives, qualification rules, and award governance. Within this framework we compare observations of GIPs from three domains – empirical reality, theory, and policy – to better understand their function as an incentive mechanism for encouraging new solutions to large-scale social challenges. Combining data from direct observation, personal interviews, and surveys, together with analysis of extant theory and policy documents on GIPs, our results highlight three points of divergence: first, over the complexity of defining prize specifications; secondly, over the nature and role of incentives, particularly patents; thirdly, the overlooked challenges associated with prize governance. Our approach identifies a clear roadmap for future theory and policy around GIPs.