X PRIZE is a decidedly American idea. We run global competitions, but the notion of incentivized entrepreneurs attacking problems is rooted in the American ideal. A couple of us meet with folks last week that called this the ‘fourth sector.’ With markets and government, non-profits (the 3rd sector) play an important role in addressing large complex inter-related problems. X PRIZE is a leader in this new fourth sector—mobilizing markets, leveraging donations, and shaping public policy for public benefit.

Prizes are most effective where the first three sectors aren’t getting the job done—where insufficient capital is flowing to good ideas, where government policy and industrial cartels block innovation, and/or where markets are underdeveloped.

Calculating the appropriate prize purse is fourth sector math. It’s a function of:

• * The amount that competitors are likely to be required to spend to win
• * The time required to achieve the goal
• * Market readiness to scale the innovation (i.e., the prize needs to be larger if market potential will take a while to develop)

Sizing the competition is also an important fourth sector decision. If changing public perception and ultimately behavior change is critical to achieving the intended impact, then a visible public competition is critical. That’s why the proposed automotive competitions are nearly as expensive as the prize purse; capturing public attention, shaping opinion, and changing car purchasing patterns are critical to fulfilling the mission to reduce emissions and our addition to oil.

Typical foundations bet on the success of an organization or particular research strategy. Lobbyists push for better public policy. Socially responsible investors attempt to bend capital markets toward public good. Hollywood documentary makers attempt to bring problems in to public view. X PRIZES do all this and more. Prizes are a magnet for mavericks. They reward risk takers with acclaim, large prizes, and invigorated markets.

The world faces big difficult problems—bigger than government, business, and non-profits can handle. X PRIZE and the emerging fourth sector leverage the best of the three by mobilizing markets for the public good—a decidedly American idea.