But the most influential aviation competition, then and later, was the $25,000 Orteig Prize for the first nonstop flight between New York and Paris. First offered in 1919, it was won in May 1927 by American aviator Charles Lindbergh in the Spirit of St. Louis. After his solo, single-engine flight across the Atlantic, interest in aviation soared, with dramatic increases in pilot licenses, aircraft registrations and airport construction.

While competitions continued, notably the Schneider Trophy seaplane races in the U.K. and Bendix Trophy air races in the U.S., their role in accelerating advances in aviation declined as the industry matured. Instead they pushed at the outer limits of aviation, notably the Kremer Prizes for human-powered aircraft, established in 1959, and the Sikorsky Prize for human-powered helicopters, first offered in 1980.

But Lindbergh and the Orteig Prize served as the inspiration when aerospace challenges began a rennaissance in the mid-1990s with the Ansari X Prize for private suborbital spaceflight. By then the industry was losing its luster as an innovator, as least in the eyes of the public and politicians. First offered in 1995, the $10 million Ansari X Prize was won in October 2004 by the SpaceShipOne, built by Burt Rutan's Scaled Composites and financed by Microsoft co-founder Paul Allen.

NASA had established its Centennial Challenges program by that point to run prize competitions ranging from astronaut gloves to lunar rovers. The agency awarded $2 million in prizes to Masten Space Systems and Armadillo Aerospace in the Northrop Grumman Lunar Lander X Challenge, and $1.47 million to teams from Pipistrel Aircraft and the University of Stuttgart in the Google-sponsored Green Flight Challenge.

But not all aerospace prizes have been a success. In 2004, hotel entrepreneur Robert Bigelow offered a $50 million prize for the first privately funded U.S. team to fly a reusable capsule capable of carrying five astronauts and docking with a Bigelow Aerospace inflatable space module. He even threw in the offer of $200 million in conditional purchase agreements and $800 million in options for flights of a selected vehicle, but the prize fizzled in the face of a lack of interest.

While prizes have been used for centuries, there has been little research into why they work—and when they do not—says Luciano Kay, a postdoctoral scholar at the University of California, Santa Barbara. His new book, Technical Innovation and Prize Incentives, is an analysis of recent aerospace prize competitions, including the Ansari X Prize, Northrop Grumman Lunar Lander X Challenge and the $30 million Google Lunar X Prize, now underway with the goal of putting a privately funded rover on the Moon's surface by 2015.

There are two key characteristics of prizes, Kay says. First is that they do not emerge from a vacuum. “It is not like you launch a prize and there is nothing there. Always there is something there,” whether technologies or markets, to build a challenge upon. Second is that publicity plays a major role, “not just for competitors, but also sponsors. Government agencies that launch prizes are considered more innovative,” he says.

Motivations to enter competitions are as diverse as the participants, and the cash purse is not the most important, says Kay. “There is more to a competition than the prize,” he says, noting the sponsor can be a key factor. “NASA is completely different to X Prize. It is known for aerospace and known for contracting opportunities. And you are dealing with a government agency, which is completely different to dealing with the private sector.”

The U.S. government's increasing use of prize competitions must be seen in the broader context of the Obama administration's push for “open innovation,” says Cristin Dorgelo, assistant director for grand challenges at the White House Office of Science and Technology Policy (OSTP). Open innovation is the concept of using external as well as internal ideas to advance technology.

“President Obama's 2009 strategy for innovation called for increased use of challenges by all agencies, and the America Competes Reauthorization Act of 2010 granted all federal agencies authority to conduct incentive challenges to spur innovation and solve problems,” she says. Since its launch in September 2010, the Challenge.gov portal for public-sector prizes has posted more than 235 offerings from 45 agencies.