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Regular version of the site

Working paper

KIBS for Public Needs

Vinogradov D., Shadrina E. V., Doroshenko M. E.
Knowledge intensive business services (KIBS) constitute a rapidly developing sector of modern economies. Numerous studies suggest that KIBS facilitate knowledge exchange between providers and consumers, and improve the innovativeness of the latter. However, because KIBS are strongly reliant on service co-production by the customer and provider working in partnership, intensive cooperation between the two parties is essential. Public procurement may provide supporting mechanisms for this sector, both directly (by purchasing services) and indirectly (by demonstrating the benefits of KIBS consumption, which may stimulate the demand for them from the private sector). Yet legislative constraints on the types of admissible public procurement mechanisms may have an undesirable effect on the provider selection, making it possible that services are purchased not from the most efficient or the most suitable provider. Along with that, public bodies are known to be managerially less efficient than private firms, partly due to a distorted system of incentives. These key differences between the public and private sectors motivated us to study the efficiency of public procurement of KIBS. In particular, we find that consumers of KIBS in the public sector report lower satisfaction from KIBS and admit a lower level of co-production than the private sector. Our main recommendations refer to the optimal choice of procurement mechanisms and the system of incentives in public institutions