Prizes and Challenges Matter for Development

Kevin Starr’s provocatively titled post, “Dump the Prizes,” raised eyebrows at both the World Bank and USAID’s Office of Science and Technology. Our two organizations are working to increase and improve the use of challenge-driven innovation (including USAID’s Grand Challenges for Development and its Tech Challenge for Atrocity Prevention, and the WB’s Development Marketplace) to achieve our development objectives, so naturally it’s worth considering whether these tools are worth our time.

The article is deliberately provocative and perhaps partially tongue-in-cheek. Although it puts forth a set of sound criticisms of poorly designed and targeted contests and prizes, we found that it was a very positive argument for good prize design. Prizes are not one-size-fits-all and are not appropriate for every type of problem.

Starr raises multiple issues regarding challenges and prizes—among them, costliness of competitions, ineffective selection mechanisms, failure to address the right issues, and excessive noise that obscures signals for effective allocation of philanthropic capital. These are by no means empty criticisms. Prize competitions are very hard to get right and small variations in design can have a significant impact.

Yet, hardly any of Mr. Starr’s objections are related to inherent flaws related to prizes as mechanisms to surface and spur innovation. Objectives can be clearly defined, design mechanisms carefully considered, juries appropriately selected, and feedback and prize money distributed in sufficient quantities. However, these very criticisms are also applicable to other mechanisms, including grants. Grant competitions can also suffer from poor design, unqualified juries, insufficient feedback, and significant competitive barriers. Prize and challenge competitions can be designed from the onset to prioritize solutions that incorporate implementation, scale, and sustainability.

Historical examples confirm that well-designed prizes can be effective in incentivizing the development of new products, paying for results (rather than ideas), and driving commercial actors into new markets. Although it certainly had its design flaws, USAID and the Gates Foundation’s Haiti Mobile Money Initiative successfully drove market entry and quick scaling of mobile financial services in a poor and previously neglected market, jumpstarting a generally overlooked aspect of humanitarian response—the financial systems. The Ansari X-prize helped usher in a new wave of commercial space exploration, and helped fundamentally shift NASA’s approach to travel to low earth orbit.

In the Knight Foundation Report quoted by Starr, 40 percent of non-winning participants said the process of applying was helpful in clarifying their ideas and connecting them with new partners. Half were still developing their solutions even though they did not receive funding from the prize competition. Participation mobilizes people to think about difficult questions, and allows entrepreneurs to refine their ideas and move forward.

Prizes have proven particularly effective at producing solutions to a clearly defined problem, raising public awareness, and crowding-in private capital. According to Everett (2011), the Shell Springboard Prize, for example, achieves a return on investment of between 200 and 900 percent, with return measured as the total spending from competitors and investment representing the total cost of running the competition. Prizes also are usually an effective use of resources due to low monitoring costs of fund disbursement, a relatively simple application process (compared to grant funding), quicker feedback cycles, and external peer review.

USAID and the World Bank have found that prizes and challenges can help accelerate our ability to solve critical development challenges in different ways. For one, they eliminate hidden biases of traditional grant programs by focusing on the problems rather than the solutions; this allows participants to advertise to an unlimited global solver audience, including those closest to the problems within the developing world. They also can help translate and source new ideas from adjacent technical spaces, and allow the funder to uncover the landscape of potential solutions, understand emerging trends, and create communities of interest. In addition, they have attracted new solvers and solutions to particular problems, opening the door for new entrants. Increasingly for USAID, we have seen a high percentage of awards coming from sectors that have never applied before—what’s more, nearly half of the applications and a growing share of the winners are coming out of the developing world. This is a great way to shift a development model from providing assistance to providing opportunity.

At their best, prizes are pay-for-performance mechanisms that can bring greater value back to donors and their constituents than traditional grants. But no matter how well designed and efficient prizes are, they are not a one-size-fits-all solution that we can throw at any social innovation challenge. There are risks to incentivizing organizations that seek to win prizes rather than solve overall problems. We need to use them selectively, have a clear and measurable outcome defined in advance, and use them as part of a portfolio approach to addressing problems.

We also agree that there is a scarcity of data linking prizes to actual results. One of the most extensive reports to date on prizes was produced by McKinsey & Company in 2009. Much of the report relies on interviews and anecdotes rather than quantitative measures of impact. This gives some indication of how much work remains to be done on the efficacy of prizes, especially for social impact and in the area of global development.

Ultimately, the question is what is the best decision for those who are most vulnerable—the people and communities that foundations, social entrepreneurs, and donor agencies aim to serve. The failure to employ a mixed portfolio of programs that can help the field advance in leaps rather than increments hurts the developing world—it passes on the risk of failure from those who can bear it to those who cannot. This is the standard by which we must judge our development interventions.

Read the original post, "Dump the Prizes," as well as other responses to the same post: "Dump the Stupid Prizes, Multiply the Rest" and "Why Open Contests Work."

Read more stories by Alex Dehgan & Aleem Walji.