Did 18th century prizes really stimulate innovation?

Maybe not, possibly patents were more effective.  Here is some new research from B. Zorina Khan, entitled “Prestige and Profit: The Royal Society of Arts and Incentives for Innovation, 1750-1850”:

Debates have long centered around the relative merits of prizes and other incentives for technological innovation. Some economists have cited the experience of the prestigious Royal Society of Arts (RSA), which offered honorary and cash awards, as proof of the efficacy of innovation prizes. The Society initially was averse to patents and prohibited the award of prizes for patented inventions. This study examines data on several thousand of these inducement prizes, matched with patent records and biographical information about the applicants. The empirical analysis shows that inventors of items that were valuable in the marketplace typically chose to obtain patents and to bypass the prize system. Owing to such adverse selection, prizes were negatively related to subsequent areas of important technological discovery. The RSA ultimately became disillusioned with the prize system, which they recognized had done little to promote technological progress and industrialization. The Society acknowledged that its efforts had been “futile” because of its hostility to patents, and switched from offering inducement prizes towards lobbying for reforms to strengthen the patent system. The findings suggest some skepticism is warranted about claims regarding the role that elites and nonmarket-oriented institutions played in generating technological innovation and long-term economic development.

I consider the origins of modern science to be a still under-studied topic.


The prizes generated intense media coverage. They were an advertising expense for science and technology. As such, I would think they were successful.

I'm not sure I believe this study. It could be, like outlined in "Longitude" by Dava Sobel (still haven't read that book) that the prize committee was too tardy in rewarding the prize winner once the milestone was reached, or, perhaps the initial prize was too small. As for 19th century patent protection, it left much to be desired, as many an inventor (Charles Goodyear, vulcanized rubber; Eli Whitney, cotton gin come to mind*) got burned and died relatively penniless.

* Notice the co-inventor of Whitney's gin also got screwed, metaphorically (Wikipedia): "Ultimately, patent infringement lawsuits consumed the profits and their cotton gin company went out of business in 1797.[3] One oft-overlooked point is that there were drawbacks to Whitney's first design. There is significant evidence that the design flaws were solved by a plantation owner, Catharine Littlefield Greene, wife of the American Revolutionary War general Nathanael Greene; Whitney gave her no public credit or recognition"

And this sexy silver screen siren invented an early form of spread-spectrum for radios, but got nothing but fame (appropriate for a Hollywood actress?): https://en.wikipedia.org/wiki/Hedy_Lamarr

TC: "I consider the origins of modern science to be a still under-studied topic." - yes, and how to teach and encourage innovation too. Seems economists believe in the free market for everything but invention, there, it's expected that geeks and nerds do their civic duty and invent stuff that will later be appropriated by businessmen for profit, for free (and historically largely these geeks and nerds have complied).

Of course if a patent was available that gave higher expected returns than a prize, then people will prefer the patents. That is hardly a test of whether patents are better than prizes to generate innovation. To really test which is better you should have a society where patents are not allowed but prizes are, and then compare that to a society which does allow patents and see which ones innovate more. But of course that is really possible since the Industrial Revolution pretty much all countries operate on the patent system and the innovative countries perhaps were innovative for other reasons, like culture or genetic.

In terms of prizes today, I think there is a place. I would suggest converting Nasa's budget for the Mars expedition to a prize. Take the money each year that Nasa is spending on the Mars expedition and compound it until someone successfully reaches Mars and returns safely. I would bet that there would be a large number of commercial companies competing for that prize and we would get there sooner than Nasa and for a lot less money.

Yes, good points but I think most of society is anti-patent. That's the biggest problem today. The public sees "patent trolls" and "Amazon single click button patent" and then can't see the forest for the trees...

Obviously the prizes were not large enough or were too infrequently awarded if the inventors preferred patents.

Patent law generates patents, not innovation necessarily.


Aggregate innovation seems to occur at a roughly constant rate over long periods. Variations in the rate of patent applications seem more attributable to rent-seeking behavior. We should fix a certain ceiling on the number of patents that can be filed a year. I suggest one third of whatever the lowest annual number was from the past 100 years.

Auction off the right to use one of the slots in the pool. And every year the patent is to remain in effect (up to the maximum 20 years), renewal requires re-subscription at the original rate. If a court invalidates the patent, the owner forfeits the license cost. If an innovator doesn't think his idea is worth enough to justify the price, then it's probably not worth enough for the legal system to justify IP enforcement. This will due a lot to reduce the worse abuses of patent trolling.

This is a system that would enable patent trolls and push out everyone else. Only patents which can be immediately monetized for large sums or protecting processes already in wide use would win the auction -- so Amazon's one click patent gets covered, while the 24,500 patents found by Google Patent related to clothes pins don't.

As I say below, the patent system should not discriminate based on business model or even economic viability. It's a straight trade of publication for legal protection. If Aunt Mary thinks she's got a better mousetrap (44,600 patents), there will be several years where her invention isn't generating any money at all. She has no chance of winning an auction -- instead she'll just walk away and leave the invention unfinished.

Dramatically increasing the cost of a patent won't spur innovation, it will just result in low revenue inventions not getting made or published.

I fail to see how parents are considered to be "market oriented," regardless of your opinion of their utility. They suppress a free market, not enable it.

Well, patents are a protection of intellectual property and allow the owner to forbid others of copying his/her/their idea.

But you, Casey, probably like Fee Simple Absolute in real property? If not, then I commend you for being consistent. If so, reexamine your priors.

Ideas aren't scarce in the same way land is.

True, it's not like real property. A better analogy is fresh water.

Someone could take fresh water and haul it up to a town to sell it. Someone else, could "take" the water and say it's not stealing, because there's an endless supply from the river and the "owner" got it for free and can always get more.

The owner's point is that while there is an endless supply of water (ideas), he spent the effort to haul it up to town (create the particular idea) and if anyone can take his water (ideas), he has less incentive to haul the water up to the town. Sure he can always try to haul up small amount of water and sell it before it can all be taken by others, but then he doesn't have much incentive to haul large amounts of water (ideas requiring lots of research) since he won't have time to sell very much before the rest is taken (short or no copyrights).

That's why nobody sells food or bottled water. They can't be patented.

"That’s why nobody sells food or bottled water. "

Those are physical items. If I take them from you, I would be arrested.

I would appreciate it if you took time to actually read my post, and feel free to leave some constructive criticism.

Interesting way to think of it.

To that, I would add the distinction between ideas along the lines of "how to separate lots of people from their money and thus become rich" or "ways to generally improve things in a way that provide opportunities to make money along the way".

Even for the second class of ideas, patents can make it possible to access capital to make stuff happen, by bringing some of estimated profit streams into the present (attracting investment).

@JWatts, good analogy, but an even better analogy is that some ideas are like fresh water that nobody thought was possible to find, and the inventor dug a well in the middle of a desert, got water, started an oasis, and now every dirtbag in the area wants to squat on the oasis and drink for free. Some ideas are like fresh water that 'would have been found' by anybody. But a lot of 'obvious' ideas and inventions are only obvious after the fact.

"I fail to see how parents are considered to be “market oriented,” regardless of your opinion of their utility. They suppress a free market, not enable it."

A free market exists because someone has a marketable commodity, labor or a device or a skill or an idea that can be profitably traded to another. Without patents ideas can't be profitably traded. And generally good ideas that can be hidden instead become secrets and are carefully protected. Which means less of a market. Or good ideas that are expensive to research are never researched which also means less of a market.

Patents are definitely market oriented (that's the whole point). They just sacrifice some of the "free" portion to make the market larger.

Without patents ideas can’t be profitably traded.

But ideas don't have to be economized, as distinct from the raw materials and processes that generate goods. This is why services can be profitably traded even though nobody has a patent on how to clean a house or cut hair.

TAG do you find your position on patents flowing from your overall political point of view or is it a teirtiary issue.

IOW what do you see as the Who/whom in patent law.

Tertiary issue. I'm not a technical person, so it's a debate I ignored for years. But watching IT expand relentlessly, often generating just alternate overhead, made me wonder if there were externalities involved. I'm coming around to the hypothesis that it's artificial scarcity more often than not.

Nothing to do with "economizing". Without IP certain fixed R&D costs cannot be sustained, ergo no product. In most cases, like software, fixed costs are low and patent protections should probably be weaker than they are. This is less clear for pharma, for example.

"In most cases, like software, fixed costs are low and patent protections should probably be weaker than they are. "

I agree with the logic behind that. And it highlights the absurdity of copyright law. Which represents the very lowest fixed costs and has the highest monopolistic legal protection.

Copyright law is horrible, but not necessarily for that reason. Patents protect against products that function similarly regardless of whether there is any copying. Copyright only protects against copying.

Also costs are highly variable. The cost to produce a motion picture is not very low, in general.

In most cases, like software, fixed costs are low and patent protections should probably be weaker than they are.

I disagree that most patentable ideas are like software, or that the entire system needs to be changed to address minor loopholes arising in software.

"Without patents ideas can’t be profitably traded."

Not true, strcitly speaking. Ideas can be packaged into goods and services, and then you compete in providing those goods and services.

Patents are likely to increase the expected profit stream, but not necessarily (a variety of specific exceptions could be imagined which are not at all strange).

Let's say that there's one part of your business that you're struggling to develop some technical solutions for. You know you've got some rock solid ideas, but not quite time, resources or magic to make it happen. You could open a bunch of patents for shared public use, with the objevtive of stimulating additional advancement and competition in this specific area, for the purpose of reducing costs and/or increasing copmetitiveness within the supply chain - by bringing on the competittion in an area of activity, this could increase profits in another area.

Many other exceptions exist. They can be very importnat sometimes, maybe even on a macro level.

Yes, Troll me, this packaging is called "trade secrets" and that's why the battery and electroplated metal (Persia), concrete (found naturally occurring in volcanic ash in Italy), heavier than air unpowered flight (China kite), and jet propulsion (Greek toy in Hero's time), not to mention analog computers (Antikythera mechanism of Greece), were all discovered, lost again and rediscovered when the trade secret died out.

Bonus trivia: Roman concrete is found in nature as pozzolana, so how come naturally occurring concrete doesn't get hard (and useless as a building material) whenever it rains outside? I dare you to figure out the answer without clicking here: https://en.wikipedia.org/wiki/Pozzolanic_reaction Of course, once you know the answer it's all 'obvious'. Such is the nature of invention.

"Not true, strcitly speaking. Ideas can be packaged into goods and services, and then you compete in providing those goods and services. Patents are likely to increase the expected profit stream, but not necessarily."

Yes, I agree with your statement. my comment was incorrect. Patents are going to boost revenue and ensure more expensive ideas are revealed more quickly than otherwise, but you can certainly make money on ideas without patents.

Not true, strcitly speaking. Ideas can be packaged into goods and services, and then you compete in providing those goods and services.

But then the person using the idea has to be the same person who invented the idea. So a guy who develops a better windshield wiper has to own GM or he's out of luck.

"I consider the origins of modern science to be a still under-studied topic" But it is very clear though: European Christian white men like Cardano, Pascal, Galileo, Newton, Huygens, Faraday, Maxwell and dozens more discovered and invented all there was to find. I can't believe you don't even know that. If you have any question, don't be shy: just ask and it will be my pleasure to explain the details to you.

Mostly, it was Chinese and Arab inventions, with a desire to blow stuff up and access to materials to do so leading to some additional innovations. At least, until the Enlightenment when some folks of secular influence started to think about using our heads to do more than conquer and subjugate.

Many in the Royal Society hated prize awards because it exposed them, largely established and sinecured academics and the like, to competition from craftsmen and uneducated people like the clockmaker John Harrison, who beat academics and astronomers to win the Longitude Prize.

You see the same antipathy towards prizes today from academics and industry, who prefer large research budgets and being shielded from competition by non-specialists and amateurs.

"largely established and sinecured academics and the like": really? Where did they hold these academic sinecures?

Yes, when the wrong sort ended up with winning design, the payment of the prize was not forthcoming. Unless you were a member and the right sort, inventing for the prize was a suckers game. Patent and profit made the modern world. The societies were at best illusions.

That seems plausible. I remember noting something similar back in college when studying the Royal Geographical Society's activities in Africa during the 19th century. The RGS, under William IV's patronage, started awarding cash prizes in the early 1830s to little effect, but exploration positively exploded with the proliferation of the penny press and more robust lecture circuits in the UK and US from the mid-1850's onward. Novel discoveries and dramatized expeditions were incredibly lucrative and compelled a lot of exploratory activity, with explorers rushing to discover something new then immediately returning home to monetize their adventures. Being 'the first' to discover something was in effect a patent, since nobody else could make a similar claim (though some did, and at other times original claims were contested) and your authority as 'the first' gave you a monopoly on recounting the experience.

Somewhat related, and concluding a story TC linked to a year ago, China can finally manufacture the little ball in the end of ballpoint pens...after a decade of focused effort and massive losses for the state-owned company directed to achieve this feat. I know TC is bullish on Chinese innovation but stories like this make me skeptical that China's top-down approach will allow dynamic and spontaneous innovation to flourish. (I also think WeChat is an abysmal piece of shit and a poor example of Chinese tech prowess.) Adam Minter's BV piece on this story is a good read and arrives at the same conclusion as the paper's author: https://www.bloomberg.com/view/articles/2017-01-16/china-s-latest-innovation-the-ballpoint-pen

That sounded like a good story, so I clicked through..

"It allocated nearly $9 million and conscripted the Taiyuan Iron & Steel Group Co., a giant state-owned stainless-steel manufacturer, known as TISCO, to lead the venture."


"Nearly" $9 million? Surely the entire economy has been mobilized!

(No, a little harmless R&D funded for beneath pocket change. Pocket lint.)

The book everybody has read on this subject is Longitude, which offers a mixed record. The Longitude prize stimulated a lot of kooks and crazies, making it difficult for the committee to give enough attention to good ideas. Some early money went to promising causes, including astronomical tables and (unless I misremember) some of Harrison's early designs and development work. The final prize took a very long time to award, to the extent that it was more a retrospective award than something that would meaningfully alter Harrison's life. It was really the commercial availability of chronometers that solved the longitude problem, and Harrison suffered somewhat from competitors copying his design.

On balance, you'd have to say that the prize and the publicity helped more than they hurt, but early funding helped more directly, and lack of patent rights hurt the overall profitability of the breakthrough.

Framing the debate as patents vs prizes seems to miss an important point in the historical record, though. What really caused difficulties was the lack of money *before* success was assured.

Gotta discern between science and innovation.

Modern science is about things like being methodical, in many fields generally assuming certain approaches to viewing statistics as a means of reaching conclusions from observations, etc. Innovation can be more profitable in some instances by similar approaches (e.g., analysis of a dozen different marketing strategies), but patents are more about applying scientific knowledge than creating it.

Historically, state/king supported scientific societies were very active in facilitating the collection of observation and exchanging on methods (inlcuding via journals and periodic meetings). The state may have often had a direct interest in what strategic use could potentially be discovered, and surely some people must have understood that this could provide a variety of profitable opportunities, whether by being a part of the king's supply chain or selling to domestic and/or foreign non-state consumers (and producers, via intermediate consumption).

S Bowler's "Evolution, A History of an Idea" is good for debates surrounding the history of science, with a general focus on those streams of science which were relevant to the understanding of evolution. For example, the philosophical/logical origins of extending from geological observation to history of life on earth then made it easily acceptable to begin doing the same with astronomical observations, potentially then being a necessary factor for, say, the work of Einstein.

..."I consider the origins of modern science to be a still under-studied topic."

This is an almost throw-away sentence. There are long established disciplines of History of Science , Sociology of Science and History of technology with solid bodies of academic work. Granted they may not have all the answers , but then no historian does.

I generally favor weaker IP and want to be hopeful about the potential of prizes, but I remain skeptical and unconvinced. One problem is that I think prizes tend to more closely approximate a form of centralized planning more than a free market, and thus miss out on the latter's advantages. Perhaps most importantly, only by requiring successful commercialization can you assure that the innovation is actually perceived as useful.

Shorter patent terms combined with prizes that are directly related to a patented product's performance during the shorter patent term seem theoretically interesting, at least: say offer a three-year patent term, with a prize at the end of it based on some multiple of the total consumer + producer surplus created by the patented product during that patent term. This not only essentially "buys out" the remaining patent term for the public domain, but would also encourage the patent-holder to price closer to the competitive level, rather than the monopoly level, during the patent term (to maximize total surplus).

I'm currently in the process of filing a patent, and I can tell you that three years isn't going to be enough to incentivize anyone. It can easily take three years from the filing date before the patent is *issued.*

For lots of important patents, it could easily be five or ten years from time of filing before the product is commercially available at all. Some innovations have real economic value, but may require other technology to be developed or a change in market preferences before they yield any money.

If you want people to spend real money inventing things, a patent has to have real economic value. Considering that the public gets the invention for free for eternity minus 20 years, there's no need to be stingy.

You're ignoring the more interesting part of the suggestion: a prize based on performance during the shorter patent term, based on some multiple of total surplus created during that term. If you believe that the 20 years term is the right term, you could make the multiple such that the prize still leads to as much (discount-rate-adjusted) profit as the patent-holder would make under a 20 year term.

I think by doing so you would still increase total societal welfare: first, by encouraging competitive pricing during the patent term, you reduce or eliminate deadweight losses from supracompetitive pricing; second, by releasing the innovation to the public domain much sooner, allowing for follow-on innovation, competitive improvements in manufacturing processes that lower costs, etc.; third, by reducing the number of extant monopolies that can potentially anticompetitively extend their patent power into other markets or being the probabalistic length of the patent.

Yeah, but when it's *your* invention you're talking about, none of that is a strong incentive. You get coverage for a few years when your invention has no market presence, then people take it away for whatever price they feel like offering. Don't forget the joys of applying to the Board of Social Benefit, the legal costs of the application, and the appeals process if your prize doesn't meet up with your expectations. And that's after the multi-year process of applying for a patent in the first place, which has its own legal costs and complicated processes. You might not even be finished with the first process when the second process starts!

Prizes are more like medals than real economic incentives. People will do amazing things for medals, but they won't do everything in life just in hopes of getting a medal later.

A large sum of money isn't a strong economic incentive? If patents were eliminated and replaced with prizes that awarded the expected profits of a patented product over the former 20 year term, people would stop inventing, despite being offered the same expected return (with significantly reduced risk) as under the current system?

There are lots of costs and uncertainties with keeping a product successfully on the market for 20 years.

A large sum of money isn’t a strong economic incentive? If patents were eliminated and replaced with prizes that awarded the expected profits of a patented product over the former 20 year term, people would stop inventing, despite being offered the same expected return (with significantly reduced risk) as under the current system?

Homo economicus should really get out and meet his neighbors sometimes. Homo Bookkeeperensis and Homo Practicalis have interesting things to say, even if they're not fun at parties.

A patent is an asset. Just like any other asset, it can be valuable or worthless. You can use it yourself, rent it out, sell it out, or hang it on the wall and wait for it to appreciate. You can value it yourself, or sell it to someone else who values it higher.

An anticipated prize is nothing more than a claim on the government. You can still list it as an asset or transfer it, but it won't provide you or your buyer with any competitive advantage. If the government decides they're spending too much money on the prize court, the value of your claim goes down.

Worst of all, the government has already gotten the economic value of your invention on the day you filed the application. From their perspective, the prize claim is just a liability. There's some sort of diffuse benefit to paying out higher prizes, but it's hard to measure, and the ultimate financial benefit to the government might be less than the difference in the prize money. And, of course, the values of individual patents are hard to establish and difficult to predict.

To me, that sounds like a chronically underfunded program with small payouts and complicated rules for establishing prize eligibility and amounts. Or else a system where people don't publish and rely on trade secrets instead.

You’re ignoring the more interesting part of the suggestion: a prize based on performance during the shorter patent term, based on some multiple of total surplus created during that term.

1) Monopoly power is a good way of extracting a multiple of total surplus, without the need for a complicated appeals process.

2) Many inventions pay off over different timeframes, and as a society we should be reasonably accomodating to different business models. That doesn't mean infinite patent terms, but consider:

The Wright Brothers began aeronautical experiments in 1899.

They applied for a patent on March 23, 1903.

Patent 821,393: "Flying Machine" was issued May 22, 1906. Two months after your patent would have expired.


The US Army signal corps put out a specification (request for bids) for a flying machine in December 1907. The Wright Brothers submitted a bid in January 1908, and made a contract with a French company the same month.

For one of the biggest inventions in history, the Wright Brothers didn't see a dime for five years after filing, and almost ten years after they started devoting significant time and money to their invention. Total societal surplus in your three year window was zero.

What about Grigori Perelman, the Russian who solved the Poincare Conjecture and turned down his Fields Medal prize money? What was his motivation? Is economics the best tool for this question?

Economics is the best tool for everything - just ask an economist.

The Fields Medal money is CD15,000 (Canadian dollars). I would pay double that amount for being able to solve a half as difficult conjecture.

Is that all for the Fields Medal?

The guy actually turned down a cool million! But I misspoke. It was Millennium Prize money, not for Fields Medal. He also refused the Fields Medal though.

Perelman: "He proposed to me three alternatives: accept and come; accept and don't come, and we will send you the medal later; third, I don't accept the prize. From the very beginning, I told him I have chosen the third one ... [the prize] was completely irrelevant for me. Everybody understood that if the proof is correct, then no other recognition is needed."

The Invention of Science: A New History of the Scientific Revolution Paperback – December 13, 2016
by David Wootton (Author) Tyler and all...this excellent and in depth book provides quite a frame for origin of science and how we think about it.

An X-prize system may not be as effective as private industry in driving technological innovation. But it would surely be better than the conventional government-funding approach.

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