The Economist has been talking up prize-giving as a good way to get the maximum bang for your charitable buck. In response to a flippant remark, suggesting prizes to solve the riddle of the missing NHS billions, from the excellent Dr Steele of Unforeseen Contingencies, I have added a discussion on the merits of offering prizes and other ways of encouraging outcomes that are perceived to be for the benefit of society, to the thread in which the comment was made.
In short, prizes, grants and arbitrary, government-defined, incentivised targets are all as bad as each other, even if they are dressed up in market clothing. They are all forms of "picking winners" (i.e. losers). They dominate policy in the UK at least, and I suspect most of the rest of the world. We need to replace the massive infrastructure of state preference with institutional protection of property rights (including the extension of that protection to cover real "externalities", where the external impact of one person's activities has a material and uncontracted impact on another's person or property) and free access to markets.