In September 2010, the Obama administration launched, an online clearinghouse where scientists, entrepreneurs and anyone else can apply for public-sector prizes. Soon after, the America COMPETES Reauthorization Act of 2010 expanded the initiative, lending federal agencies broad authority to conduct prize competitions to “spur innovation, solve tough problems and advance their core missions.”

Since then, even as public funding for science has decreased—spending on basic research has fallen by roughly a quarter since 2009—nearly 300 prizes have been offered by about 50 government departments and agencies. The U.S. Department of Health and Human Services, for example, scaled up from two prize programs in the 2011 fiscal year to 18 prizes in 2012. And the Office of Science and Technology Policy (OSTP) forecasts continued growth in publicly funded prizes. That leaves policymakers and researchers asking whether prizes are really a boon for promoting much-needed innovation, or a flashy distraction from the nation’s woeful underinvestment in research that might have greater long-term impact.

Proponents say the prize model has many advantages—perhaps most important, the idea that competitions tend to bring in new thinking from diverse disciplines. “Given how difficult obtaining funding has become from the usual sources, the prize model could be a pathway for a scientist to test out new ideas or enter a related field,” says Aman Bhandari, a former senior advisor at the White House. Nearly half of the 476 people who responded to a National Eye Institute challenge, for example, had never received NIH research funding. In one round of Saving Lives at Birth: A Grand Challenge for Development, sponsored in part by the Bill & Melinda Gates Foundation, the $250,000 first prize went to an Argentinian car mechanic who applied principles borrowed from a parlor trick (using a plastic bag to remove a cork from inside an empty wine bottle) to create a tool that eases strenuous deliveries.

Advocates in private industry say prize sponsorship is cost-effective. “This is an incredibly efficient way for companies to get access to a hundred good ideas, stimulate the marketplace and engage the public,” says Sarah Holoubek, CEO and founder of Luminary Labs, a New York City–based consultancy that has designed recent prize challenges for companies including Merck, Sanofi and Janssen Pharmaceuticals.

Most prize organizers agree that the model is better applied to some types of innovation than others, and many recent challenges have targeted narrowly focused technical problems, where it’s relatively easy to find solutions quickly. In the realm of basic science, however, progress may necessarily come more slowly, and competitions may tend to have parameters that could unintentionally exclude better approaches. “These prizes are attempting to force a process of discovery that historically has been shown to require time and strong attention to basic science,” says Stephen Redenti, a tissue engineering researcher at The City University of New York, Lehman College.

Another drawback: Prizes, if not designed correctly, may do much more for their sponsors than for the entrants. “An early challenge team told me they wouldn’t do it again unless the prize was substantive,” says Bhandari. “It took a lot of time away from their small business.” In contrast to grants, which pay money up front, prizes may favor academics who already have a steady income—undermining the OSTP’s notion that competitions spread opportunity beyond the usual suspects.

The ultimate success of the government’s prize strategy will depend on designing challenges that have the right level of specificity and monetary incentives. Most important, they need to be part of a broader innovation ecosystem that includes other kinds of funding too. On that front, Redenti expresses a bleak view shared by numerous researchers: “Based on current funding trends, there seems to be little or no value in expanding our understanding of basic science.” But Cristin Dorgelo, assistant director for Grand Challenges at the OSTP, insists it’s not a zero-sum game: “Prizes aren’t intended to be a substitute for funding basic research, but a complement to it.”