"Just what percentage of NASA's annual $15 billion dollar budget should NOT be used to fun space prizes (as opposed to "cost plus" government contracts)? "
Let's see, what govt prizes do I think we need?
Well, we could match the funds of the existing X-prize (at least), so if it gets fully funded it will be 20 million prize.
Actually I kinda like that model of matching funds, but anyways:
I think govt should buy water payloads, which is similar to prizes, but not really because it's not a contest. Anyways buying water test payloads would cost about 200 million and this would be over a 5 year period (it pays for water being launch into a orbit which is high enough so it doesn't decay within 5 years. $500 per lb of water successful placed in orbit- the govt buys a cap limit of 200 tons.
As far as Newt's plan of prizes for getting to Mars. Hmm. I think if private sector could get 1/10th the money for the prize then, I think it would be ok, if govt matched 90% of it. Same goes for the Moon, but make it 1/5- government matches 80%.
Then if NASA could begin selling it's 4 orbitors, and transfers operation of ISS to some indepentant govt body, I would be fairly happy:).
But since the world doesn't exist to make me happy, I'll settle for a NASA 5 billion total cost (taking 5 year) manned mission to the Moon to determine if there is commerical minable deposit of water at lunar poles.