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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) are 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 offer supporting mechanisms for this sector, both directly (by purchasing services) and indirectly (by demonstrating the benefits of KIBS consumption, which may stimulate a 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, meaning that services may not be purchased from the most efficient or the most suitable provider. Alongside this, public bodies are known to be managerially less efficient than private firms, partly due to their distorted system of incentives. These key differences between the public and private sectors motivated us to study the efficiency of publicly procuring 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.