Do Prizes Spur Innovation?

BusinessWeek has a quick look at the Ansari X Prize and a brief interview with founder Peter Diamandis (BW). The key questions:

But as contests have proliferated, so, too, have questions about their ability to push forward the boundaries of technology. Are they better at yielding breakthroughs than traditional research and development? Can Lotto-size payouts solve monstrously complex problems? Or are they a fad that stokes vanity-driven entrepreneurs focused on smaller-scale challenges?

Update: David Miller expands on this theme in a very thoughtful post.