Contest models highlight inherent inefficiencies of scientific funding competitions

Scientific research funding is allocated largely through a system of soliciting and ranking competitive grant proposals. In these competitions, the proposals themselves are not the deliverables that the funder seeks, but instead are used by the funder to screen for the most promising research ideas. Consequently, some of the funding program's impact on science is squandered because applying researchers must spend time writing proposals instead of doing science. To what extent does the community's aggregate investment in proposal preparation negate the scientific impact of the funding program? Are there alternative mechanisms for awarding funds that advance science more efficiently? We use the economic theory of contests to analyze how efficiently grant proposal competitions advance science, and compare them with recently proposed, partially randomized alternatives such as lotteries. We find that the effort researchers waste in writing proposals may be comparable to the total scientific value of the research that the funding supports, especially when only a few proposals can be funded. Moreover, when professional pressures motivate investigators to seek funding for reasons that extend beyond the value of the proposed science (e.g., promotion, prestige), the entire program can actually hamper scientific progress when the number of awards is small. We suggest that lost efficiency may be restored either by partial lotteries for funding or by funding researchers based on past scientific success instead of proposals for future work.