Tuesday, June 24, 2008

McCain's $300M battery prize

Consolation prizes | Free exchange | Economist.com: "The question is, will the prize induce an increase in research activity? Where batteries are concerned, this seems highly unlikely. Prizes are better suited to areas where there is not yet a clear market application for a discovery, either because the field is too young (outer space) or because the clientele is too poor (malarial drugs).

Which isn't to say there's no reason to want to encourage cleaner technologies. Because there is no price associated with the negative carbon emissions externality, the market will overproduce carbon. This can be corrected by government policy, but the most efficient way to make that correction is not to immerse the government in the business of picking winners, through prize funds or research subsidies. Instead, we should begin by pricing carbon (either through a carbon tax or cap-and-trade) to create an incentive for researchers across a broad range of technologies."