A theoretical analysis of public procurement for innovation

Sunjoo Hwang

KDI Journal of Economic Policy, 2024, vol. 46, issue 2, 21-43

Abstract: This paper provides a new theoretical rationale for public procurement for innovation (PPI), a unique policy encouraging public procurers to purchase innovative products. In contrast to existing studies that primarily emphasize the advantages of PPI, this paper takes a comprehensive approach, examining both the costs and risks associated with PPI, alongside its benefits. It finds a general condition under which PPI outperforms traditional public procurement. Under this condition, this paper demonstrates that PPI enhances social welfare by facilitating optimal risk-sharing between public procurers and the general economy. Additionally, it draws policy implications from a comparative analysis between the current PPI policy in Korea and an optimal PPI policy.

Keywords: Public Procurement for Innovation; Optimal Risk Sharing; State-Owned Enterprises (search for similar items in EconPapers)
JEL-codes: D86 H57 O38 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:kdijep:300535

DOI: 10.23895/KDIJEP.2024.46.2.21

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