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Procuring Innovation

Author

Listed:
  • Cabral, Luís M B
  • Cozzi, Guido
  • Denicolò, Vincenzo
  • Spagnolo, Giancarlo
  • Zanza, Matteo

Abstract

To stay on top of global competition, firms and governments often need to acquire innovative goods and services, including ideas and research, from their strategic suppliers. A careful design of procurement policy is crucial to make potential suppliers generate and sell the most suitable innovation. Moreover, procurement by public agencies and large firms often set the incentives for the development of innovations economy-wide. In this paper, guided by recent micro- and macro-economic research, we discuss vices and virtues of the many ways to induce potential suppliers to create and sell innovations. We consider a menu of procurement methods and policies for best procuring new knowledge and innovative products, discussing their costs and benefits in different possible scenarios and suggesting criteria to choose among them. We explain how to optimize the degree of competition between suppliers, as well as other more practical indirect ways to stimulate innovation. We discuss the effects of standard setting activities by large, often public, procurers on innovation races. We evaluate how public and large private firm’s procurement may induce innovation and growth at the national, industry or supply network level by affecting input market prices and the returns to human capital formation. Finally, we point out how risk management methods used in procurement should be modified when innovation is a central concern for a buyer.

Suggested Citation

  • Cabral, Luís M B & Cozzi, Guido & Denicolò, Vincenzo & Spagnolo, Giancarlo & Zanza, Matteo, 2006. "Procuring Innovation," CEPR Discussion Papers 5774, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:5774
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    References listed on IDEAS

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    1. Philippe Aghion & Nick Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2005. "Competition and Innovation: an Inverted-U Relationship," The Quarterly Journal of Economics, Oxford University Press, vol. 120(2), pages 701-728.
    2. Yeon-Koo Che & Ian Gale, 2003. "Optimal Design of Research Contests," American Economic Review, American Economic Association, vol. 93(3), pages 646-671, June.
    3. Daron Acemoglu & Joshua Linn, 2004. "Market Size in Innovation: Theory and Evidence from the Pharmaceutical Industry," The Quarterly Journal of Economics, Oxford University Press, vol. 119(3), pages 1049-1090.
    4. Allen, Franklin & Gale, Douglas, 1999. "Diversity of Opinion and Financing of New Technologies," Journal of Financial Intermediation, Elsevier, vol. 8(1-2), pages 68-89, January.
    5. Shavell, Steven & van Ypersele, Tanguy, 2001. "Rewards versus Intellectual Property Rights," Journal of Law and Economics, University of Chicago Press, vol. 44(2), pages 525-547, October.
    6. Vives, Xavier, 2004. "Innovation and Competitive Pressure," CEPR Discussion Papers 4369, C.E.P.R. Discussion Papers.
    7. Wright, Brian Davern, 1983. "The Economics of Invention Incentives: Patents, Prizes, and Research Contracts," American Economic Review, American Economic Association, vol. 73(4), pages 691-707, September.
    8. Guido Cozzi & Giammario Impullitti, "undated". "Technology Policy and Wage Inequality," Working Papers 2008_23, Business School - Economics, University of Glasgow, revised Oct 2006.
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    Citations

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    Cited by:

    1. Viktor Slavtchev & Simon Wiederhold, 2016. "Does the Technological Content of Government Demand Matter for Private R&D? Evidence from US States," American Economic Journal: Macroeconomics, American Economic Association, vol. 8(2), pages 45-84, April.
    2. Yeon-Koo Che & Elisabetta Iossa & Patrick Rey, 2015. "Prizes versus Contracts as Incentives for Innovation," CEIS Research Paper 358, Tor Vergata University, CEIS, revised 22 Oct 2015.
    3. Giacomo Calzolari & Leonardo Felli & Johannes Koenen & Giancarlo Spagnolo & Konrad O. Stahl, 2015. "Trust, Competition and Innovation: Theory and Evidence from German Car Manufacturers," CESifo Working Paper Series 5229, CESifo Group Munich.
    4. Falck, Oliver & Wiederhold, Simon, 2013. "Nachfrageorientierte Innovationspolitik," Studien zum deutschen Innovationssystem 12-2013, Expertenkommission Forschung und Innovation (EFI) - Commission of Experts for Research and Innovation, Berlin.
    5. Simon Wiederhold, 2012. "The Role of Public Procurement in Innovation: Theory and Empirical Evidence," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 43, March.
    6. Oliver Falck & Simon Wiederhold, 2013. "Nachfrageorientierte Innovationspolitik: Bestandsaufnahme und ökonomische Bewertung," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 51, March.
    7. Elisabetta Iossa, Federico Biagi and Paola Valbonesi, 2016. "Pre-commercial Procurement, Procurement of Innovative Solutions and Innovation Partnerships in the EU: Rationale and Strategy," IEFE Working Papers 89, IEFE, Center for Research on Energy and Environmental Economics and Policy, Universita' Bocconi, Milano, Italy.
    8. Jakob Edler & Luke Georghiou & Elvira Uyarra & Jillian Yeow, 2015. "The meaning and limitations of public procurement for innovation: a supplier’s experience," Chapters,in: Public Procurement for Innovation, chapter 2, pages 35-64 Edward Elgar Publishing.

    More about this item

    Keywords

    (procurement) risk management; auctions; competitiveness; contests; ideas; innovation; innovation policy; innovative supply; knowledge; prizes; procurement; R&D; sourcing; standards; supplier investment; technology;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L17 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Open Source Products and Markets
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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