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On September 15, 2025, Breaking Defense reported that the Pentagon is considering using a prize model for developing space-based interceptors as part of the Golden Dome initiative. Space-based interceptors are a critical element of the Golden Dome used to intercept hostile ballistic missiles during the boost phase of flight, a short period while missiles are most vulnerable and before they would be able to deploy decoys to confuse missile defense systems. Both the U.S. government and private sector have a history of using prize competitions to foster innovation and tackle challenging problems—but prize competitions rely on nonmarket forces and do not always meet their intended goals. The government has also never attempted a prize approach to kick off development of something as costly and immense as a constellation of space-based interceptors. Rather than a prize model, the Pentagon may want to consider an approach to develop space-based interceptors using its “other transaction” authority modeled after NASA’s Commercial Orbital Transportation Services program.
Q1: What are prize competitions?
A1: Historically, prize competitions have been set up by governments and private entities to encourage innovation and find solutions to intractable problems. In 1714, the British parliament passed the Longitude Act, which authorized prizes for developing a way to accurately calculate longitude at sea. In 1919, hotel owner Raymond Orteig offered $25,000 to the first person who could fly an airplane between New York and Paris—a prize claimed by Charles Linberg in 1927. In 2004, the Ansari XPRIZE was awarded to a team responsible for the first flight of a reusable, privately funded, crewed spaceship. Today, the use of prize competitions by the government and private sector to encourage innovation and achieve a specific outcome is on the rise—a trend that stretches back decades.
A 2009 study observed that the total cash value of all public and private sector prize competitions worth over $100,000 increased significantly between 1970 and 2009, growing from less than $25 million to nearly $400 million during that period. Since 2009, the U.S. government’s use of prizes has surged due to the passage of a law encouraging federal use of prize competitions. Since 2010, the federal government has conducted over 2,000 prize competitions. In fiscal year 2022, the amount of money offered in federal prize competitions totaled over $175 million, up from just $247,000 in fiscal year 2011. Congress granted the Defense Advanced Research Projects Agency statutory authority to conduct prize competitions in 1999—an authority that it extended to the entire Department of Defense (DOD) in 2006.
During the timeframe covered by the most recent dataset released by the federal government on its use of competitions and challenges—for fiscal years 2021 and 2022—the DOD reported on the status of nearly 25 prize competitions, including around 15 by the U.S. Army alone. The largest prize purse for a DOD challenge was $1.85 million for a competition conducted in collaboration with the National Telecommunications and Information Administration that focused on 5G interoperability. As of the end of fiscal year 2022, 10 of the 17 available awards for this competition had been given to participants. Meanwhile, the five winners of a smaller initiative to identify a non-polyfluoroalkyl substance (PFAS) formula for firefighting foam were each awarded a $10,000 cash prize. Many of the competitions run by the DOD required participants to propose a concept only, though a few called for a technology or concept demonstration.
Q2: When are prize competitions most effective?
A2: Prize competitions, including ones held by federal agencies, can be effective at mobilizing a large number of participants to help solve societal and other hard problems, especially for challenges that have been left unaddressed by market-based forces. Many federal prize competitions and challenges have produced positive outcomes, including one that came up with an idea for blocking robocalls and another designed to help frontline healthcare workers fight Ebola outbreaks. Typically, these federally led competitions, including most DOD uses of prizes, have focused on the generation of new and innovative ideas, rather than the development of hardware or efforts that would be capital-intensive for participants.
The aforementioned 2009 McKinsey study, which was focused on prizes aimed at philanthropic objectives, concluded that prizes are most effective at achieving specific goals when the aim is clear, there is a readiness by the “participants to bear some of the costs and risks” associated with the activity, and there is a large number of potential problem solvers. Though the report did not define “large number,” public data on U.S. government prize competitions and challenges sheds some light on the number of participants competing for federal prizes. A White House report concluded that the median number of competition participants for prizes in fiscal years 2021 and 2022 was 33—with one competition drawing in about 14,000 participants. Private sector prize competitions attract a similar large number of participants, with a research paper from 2010 looking at 166 different prize contests that involved a total of around 12,000 scientists.
The reason why prizes can be effective is surprising: Studies indicate that prestige, publicity, and honor are better motivators than monetary gain. A 2022 analysis questioned the efficacy of cash rewards, citing four reports that concluded that medals actually offered stronger incentives than money, and concluded that monetary rewards work best when they enhance the “prestige and visibility of the prize.” Other characteristics of successful prize competitions are also less than intuitive. A 2021 study that examined a prize contest involving 184 participants and a 2017 study that looked at over 260 different contests both concluded that winner-take-all prizes can produce more innovative solutions than ones that divide an award amount across multiple winners.
Q3: What are other factors to consider when using prize competitions?
A3: A prize competition is a nonmarket-based approach, which some economists argue can complement or supplant intellectual property rights as a way to further innovation, aimed at solving a problem that the market has failed to do. Prize competitions do not allow for a market-based determination of price and value, discouraging competition based on economic theories of profit and loss, instead emphasizing intangible considerations such as prestige, visibility, and publicity. While intangible considerations like honor and prestige no doubt motivate decisions made by private sector entities and individuals, they may not be the most salient motivations for many U.S. companies, which are keenly focused on balance sheet business considerations. Resorting to a nonmarket-based approach like prizes risks ruling out the participation of entities—namely U.S. companies—who are motivated primarily by profit-and-loss considerations and not swayed by the prestige conferred by awards.
In addition to possibly limiting the participation of entities focused on market-based factors, prizes also run a high risk of failing to achieve their goals. Because competitions do not reflect the true market value and costs of proposed ideas, work can sometimes lead to nowhere, to solutions that do not make business sense, or to other complications. The $20 million grand prize of the Google Lunar X Prize, which aimed to award a successful commercial lunar landing by March 31, 2018, expired and went unclaimed. Though awarding a $1 million prize to improve its recommendation engine, Netflix never implemented the winning solution, with the company saying that the gains from the winning proposal did not justify the costs. The “winner” of the prize authorized by the aforementioned Longitude Act never actually received the full award in his lifetime.
Q4: What are the considerations for using prizes to develop space-based interceptors?
A4: As noted earlier, prize competitions are best suited for mobilizing problem solvers who are less motivated by business, market-based considerations, and more motivated by prestige, recognition, and visibility. Because of these factors, a prize competition for space-based interceptors may end up limiting the number and types of participants—unlike many other federal prize competitions, work on space-based interceptors should aim to include companies that are primarily motivated by profit-and-loss considerations. Relying on a prize competition may also inject significant risk, as prize competitions do not always succeed in achieving their goals—none of the five finalists for the ambitious Google Lunar X Prize succeeded in winning the prize. Between fiscal years 2021 and 2022—the two most recent years for which public data is available—about 20 percent of federal prize competitions did not seem to lead to prize awards. Prize competitions also do not always lead to solutions that make commercial or operational sense, as was the case with the Netflix prize. Finally, there is no history of the U.S. government using prizes for something so consequential—both in terms of cost, scale, and impact to national security—as the development of space-based interceptors. While there is evidence that prizes can be used to identify novel and interesting new ideas, there is less of a track record for operationalizing such ideas, let alone on the scale required for the Golden Dome.
For developing space-based interceptors, other federal acquisition approaches with proven track records that rely more on market considerations may make more sense. For example, beginning in 2006, NASA used Space Act Agreements to pursue the development of commercial launch vehicles and spacecraft, which facilitated the delivery of cargo to the International Space Station. Using this approach, NASA provided around $800 million in federal funding for collaborating with U.S. companies as part of the Commercial Orbital Transportation Services (COTS) program. Once a commercial service was available, NASA used firm fixed-price contracts to acquire cargo transportation services to the space station. Using Space Act Agreements—similar to other transaction authority granted to the DOD—NASA provided companies more latitude to develop commercial spacecraft and launchers than would have been possible under traditional contracting approaches. Rather than using prizes, which rely on nonmarket forces, NASA used an approach that accounted for the value and costs associated with the activities it had asked private industry to undertake. NASA shared risk with the COTS vendors by providing funding and collaboration to support each step of the program.
COTS produced an economically sustainable solution that satisfied the business considerations of the commercial partners while delivering capabilities that NASA uses to this day—and will likely continue to use at least until 2030, when the International Space Station is expected to deorbit. Modeling an approach to develop space-based interceptors after the COTS program would spark innovative solutions and provide a market-based, risk-sharing arrangement, something lacking in prize competition, between the government and participating companies.
Clayton Swope is the deputy director of the Aerospace Security Project and a senior fellow in the Defense and Security Department at the Center for Strategic and International Studies in Washington, D.C.
