Working Paper: CEPR ID: DP13664
Authors: Alessandro De Chiara; Elisabetta Iossa
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 Codes: D8; H57; O31; O38; L2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| public procurement (H57) | innovation incentives (O31) |
| public procurement (H57) | project submissions by firms (L20) |
| public funds (H59) | financing projects not pursued independently (G32) |
| grants (H81) | crowding out private investment (E62) |
| public procurement (H57) | redirect investment towards public authority preferences (H40) |
| public needs significant (H49) | benefits of public procurement maximized (H57) |
| cost of public funds high (H49) | benefits of public procurement maximized (H57) |