Prizes, Publicity, and Patents: Non-Monetary Awards as a Mechanism to Encourage Innovation

Abstract

Prizes have become a prominent alternative to patents as a mechanism to encourage innovation. This paper exploits the selection of prize-winning technologies among exhibitors at the 1851 Crystal Palace Exhibition in London in 1851 to examine whether – and how – prizes may encourage innovation, even without a cash award. Baseline tests compare changes in patents per year after 1851 for technologies that won a prize with changes in patents per year for technologies that were chosen to exhibit, but did not win a prize. U.S. patent data indicate a 40 percent increase in patenting for prize-winning technologies after 1851. These results are robust to controlling for technology-specific pre-trends and to controlling for patent-quality through citation-weighted patents. The second part of the analysis examines publicity as a potential mechanism by which prizes may encourage innovation, even in the absence of a cash award. It compares changes in patents per year after 1851 for technologies that were described in a lead article in the Scientific American, a widely-read science journal, with changes in patents for related technologies and, alternatively, for all other technologies. Results indicate a comparable increase in invention, suggesting that providing publicity for promising areas of research may be an important mechanism by which prizes encourage innovation.

Keywords: O31, O30, N40

JEL Classification: prizes, patent law, innovation, science