Public procurement as an innovation policy: Where do we stand?

Abstract

Scholars and policymakers have long recognized the potential of public procurement as an industrial policy tool to incentivize innovation. However, it remains unclear to what extent this potential has been realized and what measures should be implemented to maximize performance. This paper surveys the economic literature on public procurement of innovation (PPI) to take stock of this debate. We discuss the existing research on four broad questions: i) Does PPI spur innovation? ii) How should PPI be designed to best spur innovation? iii) What barriers hinder the implementation of PPI? iv) What is the role of PPI in the innovation policy mix? We conclude that PPI can be an effective innovation policy, but that further investigation is needed for a more solid assessment. We highlight the areas where additional research is most needed and discuss policy implications for current global challenges.