Fran’s post raises an important point about trade-offs and the ossifying effects of mandates (why on earth don’t we have a much better system of cleaning our windshields if it isn’t because regulations mean we can’t develop and market-test a non-wiper-based system?).
Yet in the end, I see nothing wrong with a privately-funded prize to develop technologies on one end of the trade-off curve. As long as the resulting technology isn’t mandated so that people have to buy it, they will continue to make their own trade-offs and the value placed on the technology by the market will be recognized in the price. So far, Americans have proved resistant to voluntarily trading off safety for fuel-economy. Perhaps a 100 mpg family sedan would change that.
Is there an opportunity cost, in that developers would possibly pursue other avenues were it not for the prize? Possibly, but there is a felt need for this technology. We are likely to see funds devoted to it whatever happens. Rather than government funding, a prize is likely to lead to the most efficient distribution of resources.
We should also remember that prizes spur different approaches. The Longitude Prize was won by the inventor of the portable clockwork watch, which has been used for 200 years for a quite different purpose than the calculation of longitude at sea. Meanwhile, the “runner-up” for the prize, a set of astronomical tables, was not nearly as accurate as the winner, but actually proved to have an acceptable margin of error and was much more user-friendly. Government funding would have concentrated on one or the other approach, depending on the lobbying capabilities of the developers.