OECD workshop on measuring the link between public procurement, R&D and innovation. "Government...

Government Green Procurement Spillovers:Evidence from California Municipal Building Policies

Timothy Simcoe, Michael Toffel

Boston University and NBER, Harvard Business School

OECD Procurement & Innovation ConferenceDecember 5, 2013

Tim Simcoe (Boston University) LEED Adopters OECD Procurement Seminar 1 / 16

Public and Private Procurement

Government procurement preferences are common...U.S. EPA & EU Green Procurement PoliciesSet-asides, buy-local incentives, OMB A-119

... and proponents often invoke private spillovers...EU rules foster “green standards in private procurement”UK rules “stimulate innovation within industry”

... despite little evidence or explanation.


This Paper

Research QuestionDo municipal procurement rules stimulate private green building?

Note: Diffusion 6= Innovation

Why? Awareness, Scale, Coordination

ContributionsMeasuring procurement-policy impactsMechanism: Gov’t as “LEED Adopter”Linking compatibility to CSR and quality standardsImportant setting: LEED 2000-2008


Private Impacts of Public Procurement: Theory

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Setting: City Green Building Procurement

Conservative definition of “green procurement”No regulation or incentives to private developers

Hand collected data (2000-2008)Found 144 U.S. Cities (40 in California)

Read municipal codes for each city

Substantial policy heterogeneityOver 90% of policies based on LEED Standard

LEED = Leadership in Energy & Environmental Design

Created by U.S. Green Building Council (1998)


Two “Sides” of LEED Platform

Building CertificationPoint system (Certified, Silver, Gold, Platinum)

Register⇒ Design & build⇒ Certify

Costs (+2%) and Benefits (rents, occupancy rates & energy)

Professional Accreditation (LEED AP)LEED specific content (e.g. knowledge of points)

Proxy for other green-building inputs

Potential “Chicken and Egg” ProblemLEED Buildings⇔ LEED APs


LEED Diffusion: 2000-2008

New LEED Buildings

02

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04

,00

06

,00

0

LE

ED

Re

gis

tra

tio

ns

(c

ou

nt)

2000 2001 2002 2003 2004 2005 2006 2007 2008

Private For-Profit Private Non-Profit Gov't

New LEED APs

01

0,0

00

20

,00

03

0,0

00

Co

un

t o

f N

ew

LE

ED

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s

2000 2001 2002 2003 2004 2005 2006 2007 2008


Summary of Empirical Results

Municipal procurement ⇒ Private LEED adoptionBuildings: from 7% to 13% of non-residential constructionExpertise: 28% more LEED APs than matched control cities

Similar results for policy-adopters & neighboring cities

Procurement policy as coordination mechanismIV: Distant green policies ⇒ Nearby APs ⇒ Local BuildingsIV: Total Buildings (per cap) ⇒ LEED Buildings ⇒ Local APsLess evidence of Scale effects or Latent demand/awareness


Pre and Post-Match Sample Means

38

Table 1. Summary Statistics

Variable Name Definition Mean SD Min Max

Panel A: City-level variables

Total Private LEED Registrations Total private LEED-registered buildings during 2001-

08

1.93 6.25 0.00 99.00

Total LEED Accredited

Professionals

Total LEED Accredited Professionals during 2001-08 7.51 27.38 0.00 416.00

Total Government LEED

Registrations,

Total government LEED-registered buildings during

2001-08

0.29 0.94 0.00 12.00

Green Policy Adopter City adopted green building policy by 2008 (dummy) 0.04 0.19 0.00 1.00

Green Policy Adopter Neighbor City adjacent to a city that adopted green building

policy by 2008 (dummy)

0.15 0.36 0.00 1.00

Prius Share Toyota Prius as percent of all car registrations (x 100) 0.54 0.59 0.00 3.74

Green Ballot Share Percent of votes in favor of green ballot measures 60.73 14.76 19.85 100.00

LCV Senate Score State senator’s League of Conservation Voters score 46.54 40.88 0.00 100.00

LCV House Score State representative’s League of Conservation Voters

score

49.56 39.97 0.00 100.00

Population City population (10,000s) 2.99 5.10 0.00 46.15

Total New Buildings Total nonresidential construction starts during 2003-07 26.21 54.71 0.00 869.00

Buildings per Capita New Buildings / Population 12.06 18.42 0.00 204.00

College Percent college-educated 0.23 0.17 0.01 0.89

Income Median household income 4.80 2.17 0.00 20.00

Panel B: City-year variables

Annual Private LEED Registrations New private LEED-registered buildings this year 0.20 1.32 0.00 52.00

Annual LEED Accredited

Professionals

New LEED Accredited Professionals this year 0.04 0.24 0.00 6.00

Annual Government LEED

Registrations

New government LEED-registered buildings this year 0.94 5.21 0.00 160.00

Green Policy Adopted Focal city adopted policy by this year 0.02 0.13 0.00 1.00

Green Policy Adopted Neighbor Neighbor city adopted policy by this year 0.09 0.29 0.00 1.00

Annual New Buildings Nonresidential construction starts this year 26.21 54.68 0.00 869.00

Notes: Panel A provides summary statistics for a cross section of 735 California cities. Panel B reports annual variables at the city-year level.

Both panels exclude Los Angeles, San Diego, San Jose, and San Francisco.

Table 2. Covariate Balance in Full and Matched Samples

Panel A Panel B Panel C

Sample Full sample Green policy adopter cities and

matched controls

Green policy adopter neighboring

cities and matched controls

Weighting No weights Weighted Weighted

Green

policy

adopters

All non-

adopters

t-stat Green

policy

adopters

Matched

controls

t-stat Green

policy

adopter

neighbors

Matched

controls

t-stat

Prius Share 0.93 0.53 3.62 0.86 0.80 0.41 0.71 0.72 0.05

Green Ballot Share 72.26 60.25 4.35 71.08 68.27 1.09 68.08 65.98 1.36

LCV Senate Score 68.69 45.58 3.00 68.96 60.85 0.81 66.98 65.47 0.27

LCV House Score 69.00 48.53 2.72 65.62 61.64 0.33 64.44 63.64 0.13

Population 14.36 2.53 13.68 13.70 13.51 0.06 3.86 3.71 0.33

Annual New Buildings 140.79 21.59 12.64 139.77 109.53 0.78 25.94 31.26 1.01

Buildings per Capita 10.62 12.20 0.45 10.83 9.98 0.49 10.22 9.73 0.25

College 0.35 0.22 4.09 34.53 34.17 0.10 31.06 29.85 0.39

Income 5.58 4.77 1.97 5.70 5.83 0.33 5.98 6.04 0.12

Cities 29 697 26 180 80 291 Notes: Panel A reports means of each variable and t-statistic from unweighted OLS regression of the variable on Green Policy Adopter dummy.

Panels B and C report CEM-weighted means of each variable and the t-statistic from CEM-weighted OLS regression of the variable on Green

Policy Adopter dummy (middle panel) or Green Policy Adopter Neighbor dummy (right panel). CEM weights are described in Iacus, King, and Porro (2012) and discussed in the text.

Policy Adopters: Matched on Population and Prius

Neighbors: Matched on Population, Prius, Buildings and Income

Table Key: T-stat > 2.0 and T-stat < 1.5


Cross Sectional Weighted OLS Regressions

Policy Adopters Adjacent NeighborsSample and Matched Controls and Matched Controls

Outcome Registrations APs Registrations APs

Green Policy Adopter 7.46 15.74[3.26]*** [14.46]

Policy Adopter Neighbor 0.95 4.05[0.39]** [1.84]**

Weighted Mean Outcome 8.29 40.81 1.55 3.86N (Cities) 202 202 453 453


Conclusions

Public procurement ⇒ private green buildingPrivate demand: LEED RegistrationsComplementary inputs: LEED APs

Why? Government as “LEED Adopter”Excess inertia: Developers ⇔ LEED APsLarge customer as focal adopter

Caveat: Boundary conditions may applyEarly-stage platform in sector with major gov’t purchasesAdditional challenges linking procurement to innovation


Conclusions

Thank You!

[email protected]@hbs.edu


Empirical Strategy

1 Procurement Policy EffectsCEM Matched Cross Sectional & Panel Regressions

Adopting Cities & Adjacent Neighbors

2 Platform ExternalitiesAPs⇒ Buildings: Distant Policy Instrument

Buildings⇒ APs: Building Boom Instrument

3 Alternate MechanismsProcurement policy interaction effects

Fixed cost of AP entry⇒ City-size interaction

Increased LEED awareness⇒ Green-tastes interaction


LEED Certification

Leadership in Energy & Environmental DesignU.S. Green Building Council (1998)Point system: Certified, Silver, Gold, PlatinumTailored to New Construction, Existing Buildings, Retail...

Basic Certification ProcessRegistration with USGBC ($450 - $600)Design and build (expensive w/ large σ2 in $/LEED point)Third-party certification ($2000)

Potential BenefitsHigher rents & occupancy (Eicholtz et al 2010)Energy savings ≈ 25%? (Frankel & Turner 2008)


Alternative mechanisms

Scale EconomiesIdea: Gov’t LEED Demand covers AP’s fixed costEffect declines with market size (Bresnahan & Reiss 1991)No effect in large (perfectly competitive) cities

Demand-side AwarenessIdea: Latent demand triggered by government policyShould see larger impact in “greener” cities


Data Sources

LEED Registrations and Accreditations: USGBC

Municipal Policies: Hand collected (USGBC and DSIRE)

Prius Registrations: R.L. Polk

Construction starts: McGraw Hill Dodge Reports

Political Scores and Votes: State of California

Unit of Analysis = Census Place (City/Town)


OECD workshop on measuring the link between public procurement, R&D and innovation. "Government...

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