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Optimal Discounts in Green Public Procurement

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  • Olga Chiappinelli
  • Gyula Seres

Abstract

We consider a Green Public Procurement setting where the procurer provides a bid discount to environment-friendly technologies to foster their use. We assume that, before the auction, firms may switch to green technology via a publicly observable costly investment. We show that investment acts as a signaling device. This mitigates the effect of incomplete information on firms’ costs, thereby triggering more competitive bidding, which results in lower prices for the procurer. Therefore, even a procurer with no preference toward green technology can find it optimal to use a discount. Our results challenge the common perception that Green Public Procurement always implies a trade-off between environmental performance and purchasing price.

Suggested Citation

  • Olga Chiappinelli & Gyula Seres, 2021. "Optimal Discounts in Green Public Procurement," Discussion Papers of DIW Berlin 1983, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwwpp:dp1983
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    Cited by:

    1. Rosell, Jordi, 2023. "Did governments neglect the environment during the COVID-19 pandemic? An empirical analysis of green public procurement," Economic Analysis and Policy, Elsevier, vol. 80(C), pages 835-849.

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    More about this item

    Keywords

    Public Procurement; Environmental Policy; Auctions;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation

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