In Praise of Big Prizes

An honors course of 150 students at the University of Texas requires short written assignments each week.  The instructor had given prizes of $,1500, $1,000 and $500 to the top three papers at semester’s end. He abandoned this prize structure and now gives prizes of $100 to the three best papers each week.

The instructor, an English professor, is unfamiliar with tournament models and the idea that larger top prizes and a steeper prize gradient will elicit more effort than a flatter gradient, one with more prizes of smaller amounts (Lazear and Rosen, 1981).  My guess is that he wants to be fair rather than confer such unequal prizes; but he would get better written work if he went back to the old system, just as Tiger Woods is better motivated by a big winning prize for a whole tournament than he would be by small prizes for having the best score in a particular round. Alternatively, combine equity and efficiency by offering two $100 prizes each week, then one $1,000 prize at the semester’s end.

(HT: L.C.)

The Rise of the Prize

This is a guest post by Vijay V. Vaitheeswaran, who is the China Business Editor of The Economist and author of the just-published book Need, Speed, and Greed: How the New Rules of Innovation Can Transform Businesses, Propel Nations to Greatness, and Tame the World's Most Wicked Problems.

The Rise of the Prize
By Vijay V. Vaitheeswaran

Could the incentive prize be the most powerful and yet most underutilized tool we have to tame the wicked problems of the twenty-first century?

Prizes in themselves are nothing new, of course. The Longitude Prize — a purse of up to £20,000 — was offered by the British Parliament in 1714 for the discovery of a practical means for ships to determine their longitude. This was an enormous problem on the high seas, as the inability to work out longitude on the sailboats of the age often led to costly and deadly errors in navigation. The greatest minds of the British scientific academy wrestled with this problem, but could not crack it.

And the Winner is…

While speculation is rising about just who will win this year's Nobel Prize in Economics (to be announced on Monday), it's probably worth pointing out that the far more important Ig Nobel Prizes for the year have already been announced.

Congratulations Fran Blau!

Fran Blau is one of my favorite labor economists in the world: She's smart, savvy, tackles important problems, and also incredibly generous in helping younger scholars and colleagues with their own research. She is now also the winner of this year's IZA Prize in Labor Economics.

Wanted: Economic Advice from Students (Reward!)

The institute is offering cash prizes to the high-school and post-secondary students who provide the best answer (in video format) to the question "What is the appropriate role of government in the economy?"

Goodie-Free Bags

I especially like that last paragraph; not only is Clinton doing something different, but there is an economic twist to it. By letting people allocate their points, it is revealing attendees' preferences as well.

Freakonomics in the Times Magazine: Bottom-Line Philanthropy

In their March 9, 2008, column in the Times Magazine, Dubner and Levitt ask: why can’t a charity be run more like a business? They look at two philanthropies that have adopted unorthodox business models. Smile Train, which performs free cleft-repair surgery for poor children around the world, started training local doctors rather than flying […]