McCain's $300 Million Prize for a 'Super Battery':
Would this help or hurt?
24 Jun 2008 in Regulatory Economics, Regulatory Policy
Sen. John McCain has proposed that the federal government award a $300 million prize for the "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."
Assuming it would be a good thing to have this technology, is McCain's proposal economically sensible?
McCain says:
This is one dollar for every man, woman and child in the U.S. -- a small price to pay for helping to break the back of our oil dependency -- and should deliver a power source at 30 percent of the current costs.
But would $300 million fully compensate the person or firm that successfully invents and develops such a technology? Almost certainly not.
If this technology could be invented, it certainly would be patentable. That means the inventor could capture the invention's full value, not just $300 million. A technology that would power US transportation at 30% of current cost would be worth billions. By comparison, McCain's proposed $300 million prize is pocket change. Moreover, a technology that performed as McCain proposes but at 31% (not 30%) of current costs also would be worth billions, yet it would be ineligible for the prize. That means the incentive, at the margin, is only for hitting McCain's arbitrary targets -- not for the invention and development of energy efficient technology per se. It's also possible that a near-award winning technology would be worthless. The federal government might prohibit the use of almost-rans it to preserve the incentive of the competition, or what is the same thing, require by regulation that only the award-winning technology be used.
McCain's proposal appears to require the inventor to transfer the full value of intellectual property to the federal government. Indeed, the specification of a 30% cost threshold (70% cost savings) is a giveaway that this is true. An unregulated inventor would seek to capture as much of this value as possible, and that is incompatible with giving away 70% of it. In short, McCain's proposal is not an incentive to nvent and develop the technology; it is a strong disincentive.. An inventor who succeeded but declined to accept the prize and give away the technology could face a politically motivated and financially ruinous "windfall profits tax."
A much better incentive would be to order the US Patent and Trademark Office to expedite approval of patent applications involving patentable energy-saving inventions, and permit patent owners to fully enforce their intellectual property rights against infringers. Current policy appears to be headed in the opposite direction, making it harder for inventors to secure patents and easier for others to infringe these rights.
