Public Procurement as a Demand-Side Policy: Project Competition and Innovation Incentives

46 Pages Posted: 16 Apr 2019 Last revised: 10 Feb 2020

See all articles by Alessandro De Chiara

Alessandro De Chiara

Central European University (CEU) - Department of Economics; University of Barcelona; University of Barcelona - Barcelona Economic Analysis Team (BEAT)

Elisabetta Iossa

University of Rome Tor Vergata; IEFE Bocconi University; Centre for Economic Policy Research (CEPR)

Date Written: April 2019

Abstract

We develop a model of project competition to compare two alternative and widely used approaches: (i) A (demand-side) procurement approach, in which the public authority specifies the type of project it will finance and (ii) a (supply-side) grant system, in which any type of project can be funded. The public authority can verify the characteristics of the projects submitted, but does not know which other projects are available. The paper sheds light on the role of public procurement to foster innovation.

Keywords: Crowding out, innovation policy, Procurement, Research and Development, Steering effect

JEL Classification: D8, H57, L2, O31, O38

Suggested Citation

De Chiara, Alessandro and Iossa, Elisabetta, Public Procurement as a Demand-Side Policy: Project Competition and Innovation Incentives (April 2019). CEPR Discussion Paper No. DP13664, Available at SSRN: https://ssrn.com/abstract=3372863

Alessandro De Chiara (Contact Author)

Central European University (CEU) - Department of Economics ( email )

Nador u. 9.
Budapest H-1051
Hungary

University of Barcelona ( email )

Gran Via de les Corts Catalanes, 585
Barcelona, 08007
Spain

University of Barcelona - Barcelona Economic Analysis Team (BEAT) ( email )

Gran Via de les Corts Catalanes
Barcelona, 08007
Spain

Elisabetta Iossa

University of Rome Tor Vergata ( email )

Via Columbia n.2
Rome, 00133
Italy

IEFE Bocconi University ( email )

Via Roentgen 1
Milan, Milan 20136
Italy

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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