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A theoretical analysis of public procurement for innovation

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  • Hwang, Sunjoo

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.

Suggested Citation

  • Hwang, Sunjoo, 2024. "A theoretical analysis of public procurement for innovation," KDI Journal of Economic Policy, Korea Development Institute (KDI), vol. 46(2), pages 21-43.
    • Handle: RePEc:zbw:kdijep:300535
    DOI: 10.23895/KDIJEP.2024.46.2.21
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    References listed on IDEAS

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    1. Coate, Stephen & Loury, Glenn C, 1993. "Will Affirmative-Action Policies Eliminate Negative Stereotypes?," American Economic Review, American Economic Association, vol. 83(5), pages 1220-1240, December.
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    More about this item

    Keywords

    Public Procurement for Innovation; Optimal Risk Sharing; State-Owned Enterprises;
    All these keywords.

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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