BUYING GREEN - GOVERNMENT PROCUREMENT AS AN INSTRUMENT OF ENVIRONMENTAL-POLICY

Governments often favor environmentally superior products in procureme nt, even if they cost more than alternatives. This article analyzes th e effects of such green procurement policies. If marginal production c osts are increasing, private market responses counteract changes in go vernment purchasing (crowding out), thus reducing policy effectiveness . If significant scale economies exist, however; then private response s may reinforce changes in procurement. Procurement policies change bo th the market shares of brown and green products and total production. Whereas the changes in market share usually reduce environmental cost s, the changes in total production can go either way. As a result, the re are circumstances in which green procurement policies increase envi ronmental costs.