To Endow, Bequeath, or Award Prizes?
Brian Gongol

Since We Don't Know How Long We're Going to Live, Most People Try to Have Something Left Over When They Die
In a perfect world, we would all know when we're going to die. We'd learn to manage our finances in such a way to be fiscally solvent throughout our lifetimes, but we could maximize our spending such that the last dime would be spent upon the moment of our dying breath. (In the words of the barroom toast, "May your last check bounce.")

Lacking that perfect information, everyone plays a sort of wager: We try to guess when our time will come, and dispose of our resources accordingly. But since most people don't want to burden their heirs with post-mortem expenses (after all, isn't that the very reason for burial insurance?), this uncertainty creates a significant incentive to save more than what we actually expect to need during our lifetimes.

What's Left Can Only Be Used in a Few Ways
What's left over can be spent in countless specific ways, but only in a handful of categories: While each has its own advantages and disadvantages, it can be reasonably argued that using one's wealth to offer a prize for some worthwhile achievement is the most efficient use of that wealth and is also a very good way to cement one's historical legacy.

Approach Upside Downside
Gifts The most universal behavior is to grant gifts to one's heirs through a will; nearly everyone does it, whether rich or poor

Gifts can be highly satisfying to give; the giver can name very precisely to whom they should be given and can feel a sense of satisfaction from having given well

Most families try to ensure that each generation lives more comfortably than their parents, and gift transfers of wealth are an intuitive way to do so (though some authors, like Stanley and Danko, would suggest that the most effective transfers take place in the form of educational grants to one's descendants and that others tend not to last)
Recipients may grow "soft" and lose the incentive to work -- whether they're individuals, like children or grandchildren, or organizations. The saying goes, "shirtsleeves to shirtsleeves in three generations," suggesting that grandchildren of the wealthy either squander or simply cannot maintain what their grandparents established.

Gifts usually run out in time. Italy is not today overrun with hordes of playboy Medici heirs.
Endowments (Including "Prizes" for Non-Specific Achievements) Endowments can leverage great achievements -- the whole idea of endowing a professorship, for instance, is that the academic occupying that "chair" is charged with carrying out the finest scholarship in the named field and is granted the necessary resources to do so

Endowments can ensure a long-term impact; a well-managed endowment can be funded perpetually, providing funds for college scholarships or independent research grants permanently

Endowments have been used by the very wealthy, like Bill Gates, to create significant measurable change
Endowments can end up running at cross-purposes to those intended by the person who created them, especially if the managers of the endowment are given a lot of discretion. Large endowments with broad discretion, like the Carnegie Endowment for International Peace, can be so influential that they risk attracting the wrong interests -- people who are attracted more to the power than to the purpose of the endowment. Even smaller endowments could end up being misguided and actually achieve results contrary to the founder's intentions.

Circumstances may change considerably after the endowment is granted, rendering the endowment either purposeless or, worse, inappropriate to modern sensibilities. While it's difficult to go wrong with an endowed faculty professorship in a sufficiently broad category like physics or mathematics (like the one Stephen Hawking occupies at Cambridge), a perpetual endowment established in the 1890s for the children of carriage drivers would be quaint today.

Worse, though, an endowment established in one period might favor some religious, ethnic, or cultural bias that becomes taboo in later generations. The creator could establish a set of ironclad rules and regulations that are designed to be legally irreversible, binding the trustees to an outdated bias. If given in a family name, for instance, it could then unfairly brand that family indefinitely with a bias they may no longer hold. Suppose Henry Ford had endowed a scholarship or foundation reflecting his anti-Semitic bias. Ford certainly had the resources to find clever lawyers who could have made that bias perpetual, creating a nightmare for the Ford family today, who certainly want to distance themselves from the patriarch's idiosyncracies.

Prizes for non-specific achievements, like the Nobel Peace Prize, run all of the same risks as endowments. Without a specific, measurable objective, the prize can be awarded to those whom the founder would have never intended. Yasser Arafat won the Nobel Peace Prize, an award which was widely criticized at the time and in following years as Arafat apparently failed to continue the peace process.
Prizes for Specific Achievements (Often Called "Inducement Prizes") Prizes are an extremely efficient method of leveraging significant resources in pursuit of a single goal. The first Ansari X-Prize, for instance, was a $10 million reward for successfully launching a private spacecraft. The winning team spent more than $20 million in pursuit of the prize, and several other teams competed with their own private investments as well. The winners have already licensed the technology, certainly for a profit.

If good enough, the prize may secure the benefactor's place in history. Charles Lindbergh's nonstop trans-Atlantic flight was made in pursuit of the $25,000 Orteig Prize, securing Raymond Orteig a place in the history books.

Prizes encourage initiative and risk-taking by increasing the direct incentive for undertaking a challenge, which is an especially market-friendly way of achieving a goal. Economists are particularly enthusiastic about prizes, in some cases forecasting that they could deliver enormous gains in human welfare, and the National Academy of Engineering has called for the Federal government to use them as a policy instrument for the same reasons.

Prizes can significantly increase the pace of progress by subsidizing successful research and development. Since prizes are awarded only when the research leads to success, they provide the most encouragement to those who are most likely to succeed.

Prizes offer the donor a sense of confidence that the reward will be precisely given to a worthy individual (worthiness being specifically shown by the achievement of the desired goal)
It's possible that prizes could go unawarded for long periods of time, leaving the wealth set aside for the prize unused -- which is an inefficient use of capital

Donors can be wrong about which goals are worthwhile or laudable, diverting resources from more worthy pursuits. A prize for developing a cancer vaccine may be more useful to society than a prize for global circumnavigation by balloon.

Inducement prizes may be difficult to give in ways that are charitably satisfying. It's usually easier to feel good about giving a specific dollar amount to a worthy charity than to feel the same way about contributing to an effort to eliminate the need for the charity in the first place -- this is the conflict between donating a dollar a day to a relief fund for famine victims and donating that same dollar a day to a research effort to end famine altogether. This is the the Arrowsmith Paradox: In Sinclair Lewis's book, protagonist Martin Arrowsmith faces an ethical conflict between solving a scientific question about public health and saving the lives of the subjects on whom he is testing a vaccine. While the total benefit to humanity is surely larger from the long-term solution, it is difficult to feel as satisfied by the outcome, especially when it's just one step toward a larger goal.

Conclusion: Inducement Prizes Are the Most Efficient Means of Distributing One's Excess End-of-Life Wealth
While many factors are at play in deciding how one should distribute one's end-of-life wealth, the most efficient thing to do is almost certainly to establish specific inducement prizes. Inducement prizes are extremely good for leveraging much more investment than the initial donor puts in, and they avoid many of the unforeseen results of giving gifts or creating endowments. In the end, maximum personal satisfaction probably comes from gifts and endowments, while maximum social benefit probably comes from inducement prizes. However, as more people become aware of the power of inducement prizes, it's possible that personal satisfaction from giving them could increase and social benefit and personal satisfaction could align themselves.

Further Notes

Examples of prizes given in the form of endowments: Examples of prizes for specific achievements, already awarded: Examples of prizes currently available but not yet awarded: