Optimal Discounts in Green Public Procurement

Discussion Papers 1983, 22 S.

Olga Chiappinelli, Gyula Seres

2021

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Abstract

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.

Olga Chiappinelli

Research Associate in the Climate Policy Department



JEL-Classification: D44;H57;Q58;Q55
Keywords: Public Procurement; Environmental Policy; Auctions

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