Prizes have long been used to induce solutions to national challenges. Between the 16th and 19th centuries, prizes yielded vaccine inoculation, lifeboats, a method of calculating longitude at sea, new food-preservation techniques, and more. But by the late 19th century, prizes had largely been replaced by two other mechanisms: patents and grants.

Those tools, however, have limitations. Patents lead to innovation only in areas where inventions have commercial potential; given the structure of government funding, grants are awarded to a narrow range of eligible recipients, and many good ideas often go begging. As a result, prizes have been making a comeback.

“Prizes are an incentive mechanism that is particularly interesting when you want to specify the kinds of innovations you’re looking for and when you want to diversify the base of potential innovators,” says Fiona Murray, the David Sarnoff Professor of Technological Innovation, Entrepreneurship, and Strategic Management in the MIT Sloan School of Management. Accordingly, in early 2011, the Obama administration established regulations explicitly designed to accelerate the adoption of “ambitious prizes in areas of national priority.”

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