Buying green: Government procurement as an instrument of environmental policy

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