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A Theoretical Analysis of Public Procurement for Innovation

Hwang, Sunjoo

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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.

Issue Date
2024-05-31
Publisher
Korea Development Institute
DOI
https://doi.org/10.23895/kdijep.2024.46.2.21
Journal Title
KDI Journal of Economic Policy
Start Page
21
End Page
43
Language
eng
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