Umeå Economic Studies,
Umeå University, Department of Economics

Abstract: Public procurement is officially regarded as an effective means to secure environmental improvement. Estimates indicate that public authorities within the European Union typically purchase goods and services corresponding to approximately 16 percent of GNP per annum. Hence, it is believed, private firms can be stimulated to invest in sustainable production technologies if the market power of public bodies is exerted through Green Public Procurement (GPP) policy and legislation. However, GPP has been little studied within a framework of welfare economics. From this perspective we assess GPP as an environmental policy tool and compare it to other tools, such as taxes. The general findings are that GPP should not be used when cost-efficiency serves as the guiding rule for environmental activities and that there is a great need for research on the subject in general. This need concerns, besides effects on the environment, especially its effects on market competition. In all, this paper opens up for an interesting and most necessary research area, which is motivated by the importance of resource use for sustainability.

Keywords: Cost effectiviness; Degree of competition; Environmental Policy; Policy tools; Public Procurement Auctions; Sustainability

JEL-codes: H57; Q01; Q28

37 pages, First version: May 11, 2009. Revised: January 25, 2010.

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