Prize and Reward Alternatives to Intellectual Property

Innovation and Economic Growth, Intellectual Property, Patents and Copyright and Trademark

Article Snapshot


Michael B. Abramowicz


Research Handbook on the Economics of Intellectual Property Law, P.S. Menell and B. Depoorter eds., Edward Elgar Pub, 2019


Some scholars have proposed prize or reward systems to encourage inventors and creators, as an alternative to the current intellectual property system. Designing prize and reward systems is challenging.

Policy Relevance

Policymakers should experiment with prize and reward systems to test their results.

Main Points

  • In a prize or reward system, the government gives an award to the producer of a socially valuable invention or created work; such systems could offer an exclusive or optional alternative to the copyright or patent system.
    • Intellectual property law became more dominant than prize systems in the nineteenth century.
    • Worldwide, prize systems are rare, but are sometimes used by philanthropists.
  • A prize system rewards only a single contributor (either the best or the first), whereas a reward system makes funds available to a large number of contributors.
    • Awards are paid out after invention, so inventors must raise the fund for research themselves.
    • International coordination of award systems might be needed, so that some nations do not free-ride off of others' willingness to make awards.
  • The most important problem facing designers of a prize or reward system is the choice of mechanism for assessing the quality of the contributions.
    • One method would be for the government to observe market behavior, such as the actual use of the new invention.
    • Some propose that a market mechanism such as an auction be used to evaluate contributions.
    • Perhaps, an auction could be combined with a hearing, to ensure that the government can consider factors other than the market value of an invention in setting the award.
  • If the government fails to estimate the value of contributions accurately, then a prize or reward system will add little to social welfare.
  • Neither a prize or reward system nor a system of intellectual property rights will produce the perfect amount of investment in the creation of inventions and created works; as no reward system exists, no data is available to determine how such a system would compare to intellectual property rights.
  • Intellectual property systems minimize government's role in assessing the value of inventions and created works, but the patent office and the courts are needed to administer intellectual property rights.

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