(PC - PR) + (SIB - GR) = PBI

At Carnegie Mellon we try to explain everything through mathmatical models. That's an exaggeration, of course, but our quantitative focus did help me have some fun with a few concepts we are covering in class.

The equation above stands for:

(Philanthrocapitalism - Philanthropist Risk) + (Social Impact Bonds - Government Risk) = Prize Based Innovation

This week, while reading an interview with Thomas Vander Ark, president of the X Prize Foundation , in the Stanford Social Innovation Review I learned about prize innduced innovation. During the read I could not help thinking about the similarity of Social Impact Bonds and X Prize's approach. Both innovation methods aim to create solutions to challenges that past efforts have failed to overcome. However, by creating a prize model the risk of failure is taken off the shoulders of the government and instead shouldered by the contest participants. In venture philanthropy the risk of a venture is taken on by the granter whether is be a venture capital fund or foundation and off of the entrepreneur / innovator. In this model, all the fund's chips are tied up with one team.

Prize based innovation takes the constraints of SI bonds and venture philanthropy and throws them out the window. No limit on number of teams. No risk to public dollars or welfare. But giving up constraints also means giving up control. Prize based innovation cannot say, here's an amazing group I want to get behind with my dollars. There is limited oversight. It takes an adventurous and humble spirit to run a innovation fund based on a prize structure, one not needing to take the credit for an advancement. Do people remember the Orteig Prize ? No. They remember Charles Lindbergh.

Our additional readings this week looked at the development of what has been dubbed, "the world's first zero-carbon city". The upcoming 50,000 resident city of Masdar wil be powered by wind and sun energy while becoming a global leader in CO2 trading. Masdar is located in oil rich Abu Dhabi. So far the emirate has contributed $15 billion to Masdar's development. This resembles the prize based innovation pursued by X Prize, except the UAE is pursuing the challenges on its own without putting out the call to other governments in the world to compete.

Over the last decade or so the world has seen the UAE and Abu Dhabi throw around a lot of money to accomplish incredible feats. In door ski mountains. Man made islands shaped like a map of the world. Plans for the first rotating tower. They've been putting their relatively recently acquired wealth to innovative use.

When I look back through history, it was the first half of the twentieth century that the world looked at the United States as the birthplace of aweinspiring innovations. The Wright Brother. Henry Ford. Thomas Edison. During this era the United States was experiencing relatively new levels of wealth. As the USA has gotten used to its place as a world leader has it become too conservative in its scope of innovation? One only needs say the word "Internet" to seemingly leave my question obsolete. But have we reached the levels we once imagined for ourselves? What happened to the Jetsons? What happened to my rocket car? Hopefully, X Prize is setting up a contest , but if the present is any predictor, the UAE may beat them to the punch.