Well, an incentives discussion which leaves out the other party is not quite valid.
Although, if I were to take your implication correctly - there should be no incentive to take a patent or reject a patent other than its merit.
Which would in turn imply no cost on applying for a patent, except its applicability after review.
But that would also create a perverse incentive for firms to submit patents all the time - there is no cost involved, no barrier of entry and hence no loss in making the effort.
Alternatively, we could have a very quick review system, which would mean that soon after patent submission you get rejection or acceptance. Which would mean that the patent office would need significantly more funding - considering the number of patents it receives vs people who have to review.
If there was a solution which could automate the search for prior art, that would be cool, and a way to reduce the size of the work load.
I wonder though if perhaps fixing the patent office is a dead end, and that instead the patent office should be treated merely as a record holder, were you pay a fee for a shallow review and a time stamped filing, and then you need to use the court system to uphold them. Upholding patents should be much costlier than it is today. That is to say, it should be costlier if you file a claim that has no merit. That way it would be up to these assholes to determine wether or not they have patented something that is of actual value.
Thing is with all such suggestions, they inevitability are of the type: Fix complex system X by removing system X.
Its do-able, but I am certain that the law of unintended consequences was written to describe situations like these.
For example, in your suggestion, the part where we move the onus onto the courts, will gum up the courts. I live in India, where courts are constantly arbiting cases, and people know that if your case gets into court, it could be there for ever. Thats not a side effect we want to induce.
Now you could build in redundancy for that eventuality by expanding the number of people in court, justices and areas, but then in essence, you are moving the burden from department X to department N, with the added problem that those new people will be from law, and not a technical background.
I really do think that this is a case where people should just get someone whos a technocrat in charge, give him authority and funds, and then forget about it while the patent office is built back up into an institution that people respect.