How do prizes induce innovation? Learning from the Google Lunar X-prize

This research investigates prizes and the means by which they induce innovation. In particular, four questions that are relevant from the viewpoint of both scientific inquiry and policy-making are addressed: (1) How do different types of incentives weigh in the overall motivation of prize entrants? (2) What are the characteristics of prize R&D activities and how do they differ from traditional industry's R&D activities? (3) What are the characteristics of the prize technology outputs and how do they relate to the characteristics of prize entrants and their R&D activities? (4) Do prizes spur innovation over and above what would have occurred anyway?;This research uses an empirical, multiple case-study methodology and multiple data sources to investigate three cases of recent aerospace technology prizes: a main case study, the Google Lunar X Prize (GLXP) for robotic Moon exploration; and two pilot cases, the Ansari X Prize (AXP) for the first private reusable manned spacecraft and the Northrop Grumman Lunar Lander Challenge (NGLLC) for flights of reusable rocket-powered vehicles. This research also introduces an innovation model to investigate prizes that focuses on the competition as unit of analysis and articulates internal and external factors that can potentially explain the effect of prizes on innovation.;The investigation unveils the dynamics of prizes and contributes a better understanding of their potential and disadvantages in a context in which more traditional mechanisms are used to induce innovation.;The incentives offered by prizes attract entrants with diverse characteristics, including unconventional entrants---individuals and organizations generally not involved with the prize technologies. Entrants are generally attracted by the non-monetary benefits of participation (e.g. reputation, visibility, opportunity to participate in technology development and accomplish other personal and organizational goals) and the potential market value of the technologies involved in competitions. Many more volunteers, collaborators, and partners also participate---though only indirectly---and support official entries as they also perceive opportunities to accomplish personal and organizational goals. The monetary reward is not as important as other prize incentives, yet it is still important to position and disseminate the idea of the prize.;Prizes can induce increasing R&D activities and re-direct industry projects to target diverse technological goals, yet the evolution of prize competitions is generally difficult to anticipate. The overall organization of prize R&D activities depends on entrant-level factors such as goals, strategies, and resources, and can only be indirectly influenced by setting specific competition rules. The most remarkable characteristic of prize R&D activities is their interaction with fundraising efforts which, in some circumstances, may constrain the activities of entrants. Prizes can also selectively focus the advancement of technologies at different levels of maturity (e.g. experimental research, incremental developments, commercialization,) yet the quality of the technological outputs is also generally difficult to anticipate and depends on entrant-level factors as well.;Prizes can also induce innovation over and above what would have occurred anyway, yet their overall effect depends significantly on the characteristics of the prize entrants and the evolution of the context of the competition. The ability of prizes to induce innovation is larger when there are larger prize incentives, more significant technology gaps implicit in the prize challenge, and open-ended challenge definitions. Moreover, prizes can induce technological breakthroughs but complementary incentives (e.g. commitments to purchase technology) or support (e.g. seed funding) may be needed in some circumstances.;This research shows that prizes are a more complex mechanism and their investigation requires analyzing entrant- and context-level factors generally not considered by the literature. Prizes complement and not replace patents and other incentive mechanisms. The ability of entrants to retain IP rights on their technologies enables the R&D process and hybrid prize schemes that include financial support for qualified entrants (e.g. R&D grants) or commitment to purchase prize technologies (e.g. procurement contracts) are optional designs for these competitions.;Prizes are only one of the forms of intervention to stimulate technological innovation, but are particularly appropriate to, for example, explore new, experimental methods and technologies that imply high-risk R&D induce technological development to break critical technological barriers; accelerate technological development to achieve higher performance standards; and, accelerate diffusion, adoption, and/or commercialization of technologies. Prizes can selectively target certain technologies, R&D performers and geographic areas, and also leverage funding significantly due to their widespread, decentralized impact. They involve, however, higher programmatic risks than other more traditional mechanisms and their routine use, and/or challenge definitions that overlap, can weaken the incentive power of the mechanism. Successful implementation of competitions requires many parameters to be properly set. (Abstract shortened by UMI.)...