Evan Soltas Makes the Case for Prizes

by Reihan Salam

Given the barriers to imposing Pigovian taxes on carbon emissions and the fact that these taxes might shift carbon-intensive activities overseas or, if we make a carbon tax border-adjustable, spark a trade war, Evan Soltas suggests that we shift to a tournament approach for fostering energy science breakthroughs: 

Why are they superior to vanilla subsidies? For one, they create externalities inherent to the tournament set up — more research is produced, and the reward is greater due to the effects of recognition. Experimental tests of research tournaments find powerful effects; it turns out that researchers are competitive enough that they will organize themselves better and generate an effective increase in supply under the incentive structure established by tournaments. Other historical studies find that several major innovative advances, including sea, train, and plane travel, were achieved under tournament structures. Related work in medical research also suggests that, given the extreme risk-reward profile in disruptive research, conventional subsidies are unsuited to the task, and tournaments with large prizes are better.

Moreover, some of the political economy problems engendered by subsidies can be side-stepped, at least in theory.

A prize might be a good way to jumpstart carbon-capture technology, though one might argue that the dividends that would flow from enhanced oil recovery would be quite a prize in itself.