Procuring Innovation

50 Pages Posted: 24 Sep 2006

See all articles by Luis M. B. Cabral

Luis M. B. Cabral

New York University (NYU) - Leonard N. Stern School of Business - Department of Economics; Centre for Economic Policy Research (CEPR)

Guido Cozzi

Università degli Studi di Macerata - Department of Economics

Vincenzo Denicolò

University of Bologna

Giancarlo Spagnolo

Stockholm School of Economics (SITE); Centre for Economic Policy Research (CEPR); University of Rome 'Tor Vergata'; EIEF

Matteo Zanza

Arthur D. Little, SPA.

Date Written: July 2006

Abstract

To stay on top of global competition, firms and governments often need to acquire innovative goods and services, including ideas and research, from their strategic suppliers. A careful design of procurement policy is crucial to make potential suppliers generate and sell the most suitable innovation. Moreover, procurement by public agencies and large firms often set the incentives for the development of innovations economy-wide. In this paper, guided by recent micro- and macro-economic research, we discuss vices and virtues of the many ways to induce potential suppliers to create and sell innovations. We consider a menu of procurement methods and policies for best procuring new knowledge and innovative products, discussing their costs and benefits in different possible scenarios and suggesting criteria to choose among them. We explain how to optimize the degree of competition between suppliers, as well as other more practical indirect ways to stimulate innovation. We discuss the effects of standard setting activities by large, often public, procurers on innovation races. We evaluate how public and large private firm's procurement may induce innovation and growth at the national, industry or supply network level by affecting input market prices and the returns to human capital formation. Finally, we point out how risk management methods used in procurement should be modified when innovation is a central concern for a buyer.

Keywords: Auctions, contests, knowledge, innovation, procurement, sourcing, R&D, standards, technology, supplier investment, ideas, innovative supply, competitiveness, prizes, (procurement) risk management, innovation policy

JEL Classification: D44, H57, L15, L17, O31, O38

Suggested Citation

Cabral, Luis M. B. and Cozzi, Guido and Denicolo, Vincenzo and Spagnolo, Giancarlo and Zanza, Matteo, Procuring Innovation (July 2006). CEPR Discussion Paper No. 5774. Available at SSRN: https://ssrn.com/abstract=932112

Luis M. B. Cabral (Contact Author)

New York University (NYU) - Leonard N. Stern School of Business - Department of Economics ( email )

269 Mercer Street
New York, NY 10003
United States
212-998-0858 (Phone)
212-998-4218 (Fax)

HOME PAGE: http://www.stern.nyu.edu/~lcabral

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Guido Cozzi

Università degli Studi di Macerata - Department of Economics ( email )

Via Crescimbeni 20
Macerata 62100
Italy

Vincenzo Denicolo

University of Bologna ( email )

Strada Maggiore 45
Bologna, 40125
Italy

Giancarlo Spagnolo

Stockholm School of Economics (SITE) ( email )

P.O. Box 6501
Stockholm
Sweden

HOME PAGE: http://https://sites.google.com/site/giancarlospagnoloshomepage/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

University of Rome 'Tor Vergata' ( email )

Faculty of Economics - DEI
Via Columbia 2
Rome, RM 00133
Italy

EIEF ( email )

Via Due Macelli, 73
Rome, 00187
Italy

HOME PAGE: http://WWW.EIEF.IT

Matteo Zanza

Arthur D. Little, SPA. ( email )

Via Sardegna 40
Rome, RM 00187
Italy
+39 06688821 (Phone)

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