In modern growth theory, innovation has been acknowledged to be the engine of longterm economic growth. However, from a social perspective, firms may underinvest in R&D and innovation because of market failures that drive a wedge between private and social returns to R&D. Therefore, governments around the world are trying to foster innovation by supply- and demand-oriented policy measures. The former encompass, for instance, R&D subsidies and R&D tax credits. The latter primarily consist of regulation, support of private demand, and public procurement.
In the recent years, a new interest has emerged especially within Europe in the meaning of demand-side approaches to innovation and, more concretely, in the use of public procurement as a means to foster innovation. In this study, we summarize the existing literature on demand-oriented innovation policy. In particular, we will critically examine the various justifications for such policy and describe initiatives to this end taken in Europe and the US. Moreover, we will collect data on the size of the procurement markets in Europe and the US, trying to estimate the amount of procurement spending that is directed toward innovation. The literature review and the empirical analysis are complemented by interviews with public procurers on the federal and on the state level.
The study focuses on the following topics:
European procurement data: Tenders Electronic Daily US procurement data: Federal Procurement Data System
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