Working Paper: NBER ID: w23042
Authors: B. Zorina Khan
Abstract: 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.
Keywords: incentives; innovation; technological prizes; patents; Royal Society of Arts
JEL Codes: D02; N13; O31; O33; O34; O43
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| RSA's policies (Z38) | reduction in the number of valuable inventions submitted for prizes (O31) |
| adverse selection (D82) | prizes negatively related to subsequent areas of important technological discovery (O38) |
| RSA's prize system (D44) | ineffective in promoting innovation (O36) |
| exclusion of patented inventions (O36) | adverse selection (D82) |
| RSA's disillusionment with the prize system (H27) | recognition that policies had not promoted technological progress (O39) |