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Economics and innovation scholars have long recognized the potential of public procurement to trigger innovation. To what extent has this potential been realized so far? What can be done to improve the performance of PPI in this regard? This paper addresses these issues by providing a literature survey of research on public procurement of innovation (PPI). After categorizing PPI instruments, the paper discusses existing interdisciplinary knowledge to answer four broad questions: i) Does PPI spur innovation? ii) How should PPI be designed to best spur innovation? iii) What are the main barriers to implement PPI? iv) What is the role of PPI in the innovation policy mix? The paper concludes with a discussion of future research needs and policy insights in light of current global challenges.

In this paper we study the market effects of common ownership in a setting where any ownership structure and any shareholder size is allowed. We depart from the Standard reduced form approach of assuming that firms maximize a weighted average of shareholders' portfolios, and instead study the collective choice problem of shareholders head-on. In our model shareholder meetings elect firm managers by one-share one-vote majority rule. Managers differ in their degree of aversion to the negative externality of roduction. Voting for socially concerned managers therefore provides a mechanism for common owners to direct away the firm from own profit towards industry profit maximization. We show that allowing shareholders of any size to freely diversify their portfolio leads to monopolistic outcomes. Our results have the novel policy implication that the anticompetitive effects of common ownership can emerge even when blockholders are undiversified, but the majority of shares belongs to small diversified shareholders, indicating that small diversified portfolios may also be a threat.

The European Commission is facing the challenge and opportunity of implementing the Green Deal while simultaneously initiating the recovery of the economy following the coronavirus crisis. Investments in the basic materials industry’s transition to climate neutrality play a central role in this, as the sector is responsible for 16 percent of the EU’s CO2 emissions and is key to downstream value chains. While funding for investment opportunities is often discussed, what is needed above all for the transition is a clear policy framework that makes investments in climate-friendly technologies economically viable and ensures that companies actually implement the investments in the transition. The necessary infrastructure and institutions must then be provided in the meantime. For these measures to be implemented in a timely and coordinated manner, it is important to set targets for climate-neutral production at national and European levels and to anchor them in the National Energy and Climate Plans and in the EU governance structure., DIW Weekly Report

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.

This report supports the European Commission’s revision of the EEAG and section 7 of the GBER. It consists of 3 study items that address distinct questions: Study Item 1: The measurement of cost-effectiveness (EUR per tonne of CO2 avoided) allows for the assessment of relative decarbonisation benefits of policies, but may not always capture their overall environmental impact. Wind, solar and energy efficiency have similar cost-effectiveness, while cogeneration of heat and power is less cost-effective. Fo cusing on decarbonisation objectives only, multi-technology auctions improve cost-effec tiveness by prioritising less costly technologies. If potential inframarginal rents and dy namic effects are also considered, then technology-specific auctions may exhibit lower carbon mitigation costs in some cases. Study Item 2: Research on operating and investment aid is reviewed, with the finding that for environmentally friendly energy aid, some distortions have arisen from the nature of aid, but that both investment and especially operating aid can yield positive outcomes. Analysis of four actual schemes with operating or investment aid suggests that precise scheme design matters for success and often evolves with time. Three aid schemes are examined for industrial decarbonisation. Aid levels of 40% for fixed aid intensity are deemed unlikely, if the maximum aid intensities remain unchanged, to provide sufficient support for several industrial decarbonisation routes. Study Item 3: Empirical studies support the relevance of electro-intensity and trade in tensity for eligibility of energy-intensive users for levy exemptions in the EEAG. The anal ysis of levies from 2011 to 2018 highlights their large heterogeneity across sectors, coun tries and over time. Scenarios harmonising levies to the highest levy and abolishing ex emptions lead to a substantial decrease in profits. A limited profit decrease is predicted when levies change by a percentage value, an absolute level or are partially harmonised to a threshold. ispartof: Catalogue number: KD-05-21-173-EN-N pages:1-308 nrpages: 308 status: published

Die Europäische Kommission steht vor der Herausforderung und Chance, den Green Deal umzusetzen und dabei gleichzeitig die Erholung der Wirtschaft infolge der Corona-Krise einzuleiten. Investitionen in die Transformation zur Klimaneutralität der Grundstoffindustrie spielen dabei eine zentrale Rolle, da der Sektor für 16 Prozent des CO2-Ausstoßes der EU verantwortlich und zentral für nachgelagerte Wertschöpfungsketten ist. Während oftmals über die Förderung der Investitionsmöglichkeiten diskutiert wird, sind für die Transformation aber vor allem klare Rahmenbedingungen notwendig, mit denen Investitionen in klimafreundliche Technologien erst wirtschaftlich werden und die sicherstellen, dass Unternehmen die Investitionen in die Transformation auch umsetzen. Dafür müssen dann auch die notwendige Infrastruktur und Institutionen bereitgestellt werden. Damit diese Maßnahmen rechtzeitig und koordiniert umgesetzt werden, ist es wichtig, auf nationaler und europäischer Ebene Ziele für den Anteil an CO2-neutraler Produktion zu setzen und diese im Klimaschutzgesetz und der EU-Governancestruktur zu verankern., DIW Wochenbericht

Already after the financial crisis in 2008/2009 there was a debate on whether elements aiming at sustainable development can be part of the stimulus packages and support the recovery of the economy. Despite the instinct of policy makers to prioritise battle-tested policies during a crisis, significant levels and different types of climate-friendly components were integrated in the 2009 stimulus packages across the globe. The experience from the past crisis proves that such climate-oriented economic stimulus policies not only raise investments with benefits for economic output and jobs in the near term, but can also lay the groundwork for long-term innovation and economic development aligned with environmental constraints. By introducing policies such as Contracts for Difference for low-carbon industrial processes and renewable energy, and Green Public Procurement, governments can further ensure that their stimulus packages are transformative. Hence, "green stimuli" have the capacity to boost economic recovery also during the current Corona crisis.

Bereits während der Finanzkrise in den Jahren 2008/2009 wurde diskutiert, ob klimapolitische Maßnahmen kurzfristig die Produktion und Nachfrage stimulieren und so auch Teil von Konjunkturpaketen sein können. Obwohl politische Entscheidungsträger in einer Krise dazu tendieren, auf bewährte Mittel zu setzen, wurden damals weltweit klimafreundliche Komponenten in die nationalen Konjunkturpakete integriert. Die Erfahrungen der vergangenen Krise zeigen, dass eine solche klimaorientierte Konjunkturpolitik nicht nur kurzfristig zu Wirtschaftswachstum und Arbeitsplätzen führt, sondern auch die Grundlage für langfristige Innovationen und eine klimafreundliche wirtschaftliche Entwicklung schafft. Etwa durch die Einführung von Differenzverträgen für CO2-arme Industrieprozesse und für erneuerbare Energien und Green Public Procurement können Regierungen sicherstellen, dass ihre klimapolitischen Impulse eine transformative Wirkung entfalten. Auch in der Corona-Krise können 'grüne Stimuli' einen wichtigen Beitrag zur Erholung der Wirtschaft leisten.

Carbon pricing decisions by governments are prone to time-inconsistency, which causes the private sector to underinvest in emission-reducing technologies. We show that incentives for decarbonization can be improved if complementing carbon pricing with carbon contracts for differences, where the government commits to pay a fixed carbon price level to the investors. We derive conditions under which the government is willing to "tie its hands" with the contracts. A previous version of this paper was titled: "Time-consistent carbon pricing".

This paper explores which climate-friendly projects could be part of the COVID-19 recovery while jump-starting the transition of the European basic materials industry. Findings from a literature review on technology options in advanced development stages for climate-friendly production and enhanced sorting and recycling of steel, cement, aluminium and plastics are combined with insights from interviews with 31 European industry stakeholders about the practical and economic feasibility of these technology options. Results indicate that with an estimated investment of 28.9 billion Euro, about 20% of EU's basic materials could be produced through low-emission processes or additional recycling by 2025 with technologies that are commercially available or at pilot scale today. However, our stakeholder consultation also shows that in order to make these short-term investments viable in the long term, six main barriers need to be addressed, namely i) the lack of effective and predictable carbon pricing, ii) the limited availability of affordable green electricity, iii) the lack of a regulatory framework for circularity, iv) low technology readiness and funding, v) the lack of infrastructure for hydrogen, CO2 and power, and vi) the lack of demand for climate-friendly and recycled materials. Based on these insights, the paper proposes elements of a policy package that can create a long-term framework favourable for investments in these technologies and should ideally accompany the recovery package to give credibility to investors that the business case will last beyond the recovery timeframe.

DIW Wochenbericht

Nach Schätzungen des vorliegenden Berichts sind staatliche Käufe für mindestens zwölf Prozent der deutschen Treibhausgasemissionen verantwortlich. Diese entstehen vor allem im Zuge der Bereitstellung öffentlicher Dienstleistungen und von Bauinvestitionen. Durch umweltfreundliche öffentliche Beschaffung (Green Public Procurement, GPP) – die Berücksichtigung der CO₂-Bilanz von Gütern und Dienstleistungen bei der Vergabe öffentlicher Aufträge – können diese Emissionen gesenkt werden. Staatliche Bauinvestitionen, insbesondere die Infrastruktur, können zu einem Hotspot für die Bekämpfung des Klimawandels durch GPP werden. Doch nachhaltige Beschaffungspraktiken spielen in Deutschland noch immer eine begrenzte Rolle und sind nicht primär auf eine Reduktion von Emissionen ausgerichtet. Eine Befragung von öffentlichen Beschaffungsstellen zeigt, dass die technische Komplexität von GPP als Haupthemmnis wahrgenommen wird, verbunden mit geringen administrativen Kapazitäten. Der Gesetzgeber sollte darauf hinwirken, dass Klimakriterien ein höheres Gewicht zukommt sowie – vor allem auf kommunaler Ebene – Kapazitäten ausgeweitet werden und das Personal entsprechend geschult wird. Überregionale Beratungsstellen für nachhaltige Beschaffung können hierbei die kommunale Ebene unterstützen., DIW Wochenbericht

This report estimates that government consumption and investment are responsible for at least 12 percent of German greenhouse gas emissions, mostly arising from the provision of public services and construction. Climate-friendly Green Public Procurement (GPP), which takes into account the carbon footprint of products and services in public tenders, can help reduce these emissions. Construction, and especially infrastructure, can be a main area for climate change mitigation through GPP. Yet the implementation of GPP practices in Germany is still limited and not focused on emission reduction. Based on a survey among procurement officials, this report shows that the main perceived barrier is the technical complexity of GPP combined with a low administrative capacity. Priority policy measures to overcome these barriers include triggering political commitment to GPP at the local level, enhancing specialized procurement capacities, and strengthening the provision of assistance to procurement authorities, for instance through competence centers on sustainable procurement., DIW Weekly Report

The transition towards low-carbon economies requires massive investments into renewable energies, which are commonly supported through regulatory frameworks. Yet, governments can have incentives - and the ability - to deviate from previously-announced support once those investments have been made, which can deter investments. We analyze a renewable energy regulation game, apply a model of time-inconsistency to renewable energy policy and derive under what conditions governments have incentives to deviate from their commitments. We analyze the effects of various support policies and deployment targets and explain why Spain conducted retrospective changes in the period 2010-2013 whereas Germany stuck to its commitments.

Im Grundstoffsektor, ein gewichtiger Emittent von Treibhausgasen weltweit, werden Emissionsminderungspotentiale noch unzureichend ausgeschöpft. Vor allem von Möglichkeiten der Substitution von Materialien, des verbesserten Produktdesigns oder des Recyclings und der Wiederverwendung von Produkten wird zu wenig Gebrauch gemacht. Um diese Potentiale zu erschließen, muss in Europa ein kohärenter Politikrahmen entstehen, der es erlaubt, das Portfolio von Emissionsminderungspotentialen zu erschließen. Hier werden vier Bereiche, in denen prioritär und zeitnah gehandelt werden muss, sowie die zugehörigen Politikinstrumente vorgestellt. Der Umfang und die Qualität von Recycling müssen gesteigert werden; Märkte für klimafreundliche Produkte und Technologien müssen geschaffen werden, sowohl kurzfristig für die Etablierung von Innovationen auf dem Markt, als auch langfristig durch CO2-Preissignale; die Emissionen aus CO2-intensiven Prozessen und Technologien müssen reduziert werden., DIW Wochenbericht

Motivated by the EU concept of Pre-Commercial Procurement and the massivepresence of SMEs in the European economy, we study how budget constraints affect R&D effort in sequential elimination tournaments. We show that introducingbudget constraints leads to a non-monotonicity in unconstrained contestants' effort.Furthermore, we show that if the budget asymmetry is not too large, unconstrainedcontestants exert higher effort than when faced with unconstrained contestants only.

Die öffentliche Hand gibt große Anteile des Bruttoinlandsprodukts für Waren und Dienstleistungen aus und ist somit für einen erheblichen Anteil der Treibhausgasemissionen verantwortlich. Angesichts dieser beträchtlichen Auswirkungen steht der Staat einerseits in der Verantwortung, möglichst emissionsarm einzukaufen, und verfügt andererseits über das Potenzial, Märkte zu mehr Nachhaltigkeit zu bewegen. Die sogenannte 'umweltfreundliche öffentliche Beschaffung' (Green Public Procurement, GPP) zeichnet sich dadurch aus, dass umweltrelevante Kriterien bei der Auftragsvergabe berücksichtigt werden. In Deutschland - Europas größter Volkswirtschaft - machen staatliche Einkäufe 15 Prozent des Bruttoinlandsprodukts aus. Trotz steigender Zahlen bleibt GPP in der öffentlichen Auftragsvergabe jedoch weiterhin die Ausnahme. Einer weitergehenden Umsetzung steht vor allem die Wahrnehmung entgegen, dass die Berücksichtigung von Umweltkriterien zu höheren Beschaffungskosten führt. Außerdem fehlt es der Verwaltung an Kapazitäten, um sich die juristische und technische Expertise für GPP anzueignen. Ein klares politisches Mandat zur Finanzierung der durch die Umweltauswirkungen der beschafften Waren und Dienstleistungen entstehenden Mehrkosten sowie spezielle Fortbildungen für das Personal der Beschaffungsstellen können dazu beitragen, dass GPP zukünftig vermehrt zur Anwendung kommt.

Public authorities spend large proportions of their GDP on goods and services and are therefore responsible for a significant share of embedded emissions. Given this large impact, governments have the responsibility of decarbonizing their purchases, as well as the potential to influence markets towards sustainability. So-called 'Green Public Procurement' (GPP) consists in the use of environmental criteria in the procurement process. In Germany, Europe's biggest economy, public purchases account for 15 percent of annual GDP. However, despite a rising trend, the use of GPP in public procurement contracts remains marginal. The main barriers to broader implementation is the perception that including environmental criteria leads to higher procurement costs. Further, administrative capacity faces constraints to acquire legal and technical expertise about GPP. A clear political mandate for financing the incremental costs incurred from the environmental impact of procured goods and services, as well as specific training programs for procurement officials can encourage an increased adoption of GPP in the future.

We exploit a new dataset based on EU procurement award notices to investigate the relationship between the degree of centralization of public procurement and its performance. We focus on the case of Italy, where all levels of government, along with a number of other public institutions, are involved in procurement and are subject to the same EU regulation. We find that i) municipalities and utilities, which currently award the largest shares of contracts, perform worse than all other institutional categories; and ii) decentralization implies lower performance only when it comes with weak competences of procurement officials. The evidence seems to suggests that a re-organization of the procurement system, both in terms of partial centralization and better professionalization of procurement officials, would help improve overall procurement performance.

In this paper we show that carbon pricing is subject to time-inconsistency and we investigate solutions to improve on the problem and restore the incentive for the private sector to invest in low-carbon innovation. We show that a superior price-investment equilibrium can be sustained in the long-term, if the policy-maker is enough forward looking and allowed to build reputation. In the short-term, time-inconsistency can be alleviated by complementing carbon pricing with project-based carbon price guarantees. Newer version published at DP 1859 (2020). Please cite the new version: http://hdl.handle.net/10419/218980

This paper presents a novel theory of corruption in public procurement. It considers an agency setting of contract execution where the principal is a politician who can commit to a contract auditing policy. It is found that a benevolent politician, by choosing a sufficiently strict auditing, deters the contracting firm from padding costs, conversely, a selfish politician chooses a relatively lax auditing in order to create an incentive for cost-padding, and engages in corruption with the firm in case of detection. If the cost of auditing is high enough, even a benevolent politician might prefer to allow cost-padding.

Accounting for about 15-20% of GDP in developed economies, public procurement is both a paramount economic phenomenon and a leading activity of governments. Sound procurement policies and practices are therefore essential not only to achieve best value for money when purchasing goods and services of public utility, but also to pursue strategic objectives of crucial importance (e.g., sustainable growth and innovation) and to optimize spending in an era where public money has a high opportunity cost. This dissertation contributes to the research on public procurement by providing original investigations and results in an interdisciplinary fashion. The three essays presented adopt different methodologies to analyze relevant issues in public procurement which have been so far neglected by the literature. The first essay provides an auction-theoretical analysis of “Precommercial Procurement” (PCP), which is an innovative stepwise practice recently introduced in the EU for the public procurement of R and D. In particular, PCP is modeled as a multistage elimination contest with budget-constrained players and non-sunk bids. The non-sunk feature constitutes a novelty in the modelization of elimination contests and relies on the consideration that when budget-constrained contestants initially strategize on how much to bid in each stage, they do not regard bids spent in earlier stages as strategically irrelevant. This is due to the fact that contestants face a trade-off when allocating scarce resources over stages: the more they spend earlier the less they have to spend later, and vice versa. In a simple two-stage all-pay framework with complete information and asymmetric players, it is found that, notwithstanding the trade-off, the ex-ante strongest player is always able to deter other players from submitting a positive bid in the first stage, guaranteeing herself shortlisting with the smallest outlay, and saving most resources for the second stage. This is shown to imply that the two-stage all-pay contest has a lower performance, in terms of expected revenue, than the single-stage one. On the basis of these results, PCP does not seem to be a very advantageous practice for the procurement of R and D. The second essay provides a contract-theoretical framework to explain the occurrence of embezzlement of public money in the execution of public contracts. It is argued that at the core of the phenomenon is an agency problem where the room for the contracting firm’s moral hazard is created by the opportunism of its principal - a corruptible top-tier politician. It is considered that often corruption interests the execution stage of a contract (rather than only the award stage) and has a political nature (rather than only bureaucratic): top-level politicians may as well have to gain from large-scale corruption. In particular, the model allows for the political principal to be partially selfish and for both the auditing technology and the stakes of corruption to be endogenous and dependent on the selfishness of the politician. The model shows that while a moderately opportunist politician prevents the firm from embezzling money, an enough opportunist politician creates an incentive for embezzlement in optimal contracts, in order to ask for a share of the money conditional upon detection. The third essay investigates empirically the relationship between the degree of centralization in a procurement system and its performance. Despite its centrality, this issue has been only marginally considered by the literature, and without conclusive findings. The essay exploits the TED dataset to provide a preliminary investigation of the issue for Italy. The Italian case is appropriate in this context since all levels of government plus a number of other public institutions are involved in procurement, and are largely subjected to the same rules. Using winning rebate as a measure of procurement performance, and controlling for other determinants of rebate, it is found that small decentralized units (i.e., municipalities and public enterprises) are less efficient than (more) central purchasers, despite they currently award most procurement contracts. It is argued that at the basis of this performance gap is the fact that small decentralized purchasing units lack the specialized and competent human resources which are needed to efficiently administrate the procurement process. It is therefore concluded that the Italian procurement system is probably too much decentralized and that some reorganization on a more centralized basis could improve on the general performance gap.

In this paper we study a multi-stage elimination contest with non-sunk bids: differently from existing literature, we realize that when players are budget-constrained, they do not regard past bids as strategically irrelevant in their decision of how much to bid in following stages. This happens because they face a basic trade-off when allocating scarce resources over stages. We believe that although non-sunk bids make the analysis more complex, they allow to improve the quality of the modelization for many real scenarios, like R&D contests and sport tournaments. In our simple two-stage framework with complete information and asymmetric players, we find that: (i) there is a unique SPNE where in the first stage only the strongest player bids positive, while forcing the others to bid zero; in the second stage shortlisted bidders play mixed strategies, and the strongest player wins the game on average; (ii) relative ex-ante strengths of players are relatively more important, in determining the outcome of the game, than their relative abilities of allocating limited resources over the stages; (iii) the two-stage contest yields a lower expected revenue than the one-stage one, due to the fact that the first stage yields basically no revenue and that shortlisting to the second stage is inefficient. On the basis of these results, our elimination contest does not seem to be a very advantageous allocation mechanism for the contest sponsor.

This paper explores climate-friendly projects that could be part of the COVID-19 recovery while jump-starting the transition of the European basic materials industry. Findings from a literature review on technology options in advanced development stages for climate-friendly production, enhanced sorting, and recycling of steel, cement, aluminium, and plastics, are combined with insights from interviews with 31 European stakeholders in these sectors about the practical and economic feasibility of these technology options. Results indicate that with an estimated investment of 28.9 billion Euros, up to 20% of EU���s basic materials could be produced through low-emission processes or additional recycling by 2025 with technologies that are commercially available or at pilot scale today. However, our stakeholder consultation also shows that in order to make these short-term investments viable, six main barriers need to be addressed, namely: (i) the lack of effective and predictable carbon pricing, (ii) the limited availability of affordable green electricity, (iii) the lack of a regulatory framework for circularity, (iv) low technology market readiness and funding, (v) the lack of infrastructure for hydrogen, CO2 and power, and (vi) the lack of demand for climate-friendly and recycled materials. Based on these insights, the paper proposes elements of a policy package that can create a framework favourable for investments in these technologies; these policies should ideally accompany the recovery package to give credibility to investors that the business case will last beyond the recovery period. Technologies for climate-friendly materials production, sorting and recycling can be supported as part of the recovery package but require an enabling policy framework.Combining continued free allocation with a Climate Contribution within the EU ETS can enhance economic viability of climate-friendly options.Project-based Carbon Contracts for Difference can eliminate carbon price uncertainty for climate-friendly processes.Auctions for publicly backed Contracts for Difference and Power Purchasing Agreements can guarantee price-stability of low-emission electricity.Green public procurement and public-private partnerships can provide infrastructure for hydrogen, CO2 and electricity while creating demand for climate-friendly materials.Revising regulations on product design and end-of-life emissions can improve sorting and recycling incentives. Technologies for climate-friendly materials production, sorting and recycling can be supported as part of the recovery package but require an enabling policy framework. Combining continued free allocation with a Climate Contribution within the EU ETS can enhance economic viability of climate-friendly options. Project-based Carbon Contracts for Difference can eliminate carbon price uncertainty for climate-friendly processes. Auctions for publicly backed Contracts for Difference and Power Purchasing Agreements can guarantee price-stability of low-emission electricity. Green public procurement and public-private partnerships can provide infrastructure for hydrogen, CO2 and electricity while creating demand for climate-friendly materials. Revising regulations on product design and end-of-life emissions can improve sorting and recycling incentives.