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Government Problems and the Power of Prizes

There's a reason the public sector is increasingly turning to competitions for innovative solutions. They work.

Philadelphia has long had a crime problem. This year the city of Brotherly Love was ranked the 5th most dangerous big city in the country. Unfortunately, that wasn't an aberration -- Philadelphia has hovered between 4th and 7th most dangerous throughout the last decade.

This year Mayor Michael Nutter decided to try a different approach to cutting crime: launching a competition. The city crafted a $100,000 challenge called FastFWD and invited entrepreneurs to develop innovative solutions to crime. "We wanted to open up the solution space," explains Story Bellows, who led the initiative for the city. "We were looking for solutions we didn't expect and didn't even know existed."

In addition to $10,000 in seed money, each of the winners earned the chance to do a pilot project with the city. One of the winners was Jail Education Solutions, a tablet-based learning platform built for inmates by a young entrepreneur whose father was an educator at California's Folsom prison. "We know that educational training reduces recidivism and saves taxpayer dollars, so we're excited that the Philadelphia is enabling technology that can improve the opportunities of so many returning to our communities," says co-founder Brian Hill.

The city of Philadelphia is just one of many jurisdictions turning to incentive prizes to try to solve thorny problems. Challenges are becoming an increasingly important tool for societal problem-solving; they unite problems with problem-solvers, filling holes in business models that cater mostly to traditional buyer-seller relationships. Prize programs engage problem-solvers often neglected by government's traditional procurement and research- grant systems.

Furthermore, contests promote the commingling of ideas in a way that isolated, closed-door R&D efforts can't. In the Philadelphia case, as part of the selection criteria city officials looked for startups with complementary skills that could collaborate after being chosen.

Prize programs also offer a cost-effective alternative to traditional government procurements. The procurement process funds approaches, whereas prizes reward results. And while the procurement system favors players with traditional credentials and proven track records, competitions accept anyone, thereby multiplying the number and diversity of brains tackling a problem.

These represent just a few of the reasons state and local public-sector leaders are increasingly turning to challenges. As explained in a new Deloitte University Press study, "The Craft of Incentive Prize Design: Lessons from the Public Sector" (co-written by one of the authors of this column), challenges can help policymakers do everything from attracting new ideas to stimulating markets to mobilizing action.

State and local governments already have a good bit of experience running effective, high-impact prize challenges. For example, New York City's BigApps competition released city data to participants, incentivizing them to develop mobile application solutions that use municipal data to solve city-wide problems. The winners of the 2013 iterations included apps to identify healthy options at nearby restaurants, help parents find quality child care, calculate homeowners' savings for a range of solar-power options, and teach kids software coding.

For governments wanting to get into the prize game, there is no need to reinvent the wheel. Hundreds of public-sector prize competitions have been conducted over the past half-decade, more than 300 at the federal level alone. Policymakers can leverage what has been learned in these efforts to avoid some of the early hiccups when designing their own challenges and prizes. These principles can help:

Design prizes after clearly defining the problem and specifying the desired outcome. Successful public-sector prize designers carefully scope the problem area they are hoping to address and determine exactly what they want to achieve through the use of a prize.

Use prizes when there isn't a clear, defined approach to solving a problem. Prizes are particularly effective in inspiring creativity and novel approaches. Competitions work best when a large number of diverse participants can approach the problem in a variety of ways.

Use prizes in scenarios where all participants -- not only the winners --- will emerge with something valuable. Whether it is mentorship during solution development, networking opportunities with potential investors or elevating public awareness of an issue, it is important for all individuals and teams to feel that they have gotten something out of their participation.

Incentive prizes are powerful tools of change. They build and maintain communities of interest that help organizations address complex, ambiguous problems. Prizes also create opportunities for public organizations to share costs with private and philanthropic partners. They foster collaboration among government, academia, the private sector and individuals.

Most important, prizes show that government can innovate in the service of the public good and open up problem-solving to leverage previously untapped ingenuity.

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