Monday, June 23, 2008

Prizes (McCain, battery) vs. subsidies (Obama, ethanol)

Senator McCain has just proposed a prize for a new battery.
“I further propose we inspire the ingenuity and resolve of the American people by offering a $300 million prize for the development of a battery package that has the size, capacity, cost and power to leapfrog the commercially available plug-in hybrids or electric cars,’’
while Senator Obama re-iterates his support for ethanol subsidies:

...when it comes to domestic ethanol, almost all of which is made from corn, [Obama] also has advisers and prominent supporters with close ties to the industry ... “ultimately helps our national security, because right now we’re sending billions of dollars to some of the most hostile nations on earth.”
The Volokh Conspiracy has a nice discussion of the merits of these two policies:

Direct government subsidies are a particularly poor way to encourage innovation. Perhaps it should be possible to direct research and development funds toward the most promising and valuable technological endeavors, but this rarely happens in practice. Government subsidies tend to be dispersed on political criteria, rewarding large, politically connected incumbent firms, rather than innovative upstarts. Failing industrial dinosaurs with lobbyists on the payroll are in much better position to snatch up government goodies than revolutionary thinkers toiling in garages or private labs.
DISCLAIMER: I am supporting McCain and my co-author is not.


  1. McCain's proposal is based on the contests that companies run. The contest's benefit to the company is to see the problem in a different way through the solutions that the competitors bring. The company's gain is increasing its knowledge in-house. McCain's proposal won't, on its own, capture the knowledge gained from such an event.

  2. I think it doesn’t matter in how’s hands the technology will be. Once viable in a low cost the owner will have the interest to make it available for the consumer market.

  3. That's assuming that the contest will reveal the technology. If the submitter already has a viable technology then he/she can sell it someone who can make it.

    The issue with McCain's proposal is that it will produce different ways to look at the problem and not a complete solution.