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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.
Tim Simcoe (Boston University) LEED Adopters OECD Procurement Seminar 2 / 16
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
Tim Simcoe (Boston University) LEED Adopters OECD Procurement Seminar 3 / 16
Private Impacts of Public Procurement: Theory
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Tim Simcoe (Boston University) LEED Adopters OECD Procurement Seminar 4 / 16
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)
Tim Simcoe (Boston University) LEED Adopters OECD Procurement Seminar 5 / 16
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
Tim Simcoe (Boston University) LEED Adopters OECD Procurement Seminar 6 / 16
LEED Diffusion: 2000-2008
New LEED Buildings
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Private For-Profit Private Non-Profit Gov't
New LEED APs
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ew
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Tim Simcoe (Boston University) LEED Adopters OECD Procurement Seminar 7 / 16
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
Tim Simcoe (Boston University) LEED Adopters OECD Procurement Seminar 8 / 16
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
Tim Simcoe (Boston University) LEED Adopters OECD Procurement Seminar 9 / 16
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
Tim Simcoe (Boston University) LEED Adopters OECD Procurement Seminar 10 / 16
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
Tim Simcoe (Boston University) LEED Adopters OECD Procurement Seminar 11 / 16
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
Tim Simcoe (Boston University) LEED Adopters OECD Procurement Seminar 11 / 16
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
Tim Simcoe (Boston University) LEED Adopters OECD Procurement Seminar 11 / 16
Conclusions
Thank You!
tsimcoe@bu.edumtoffel@hbs.edu
Tim Simcoe (Boston University) LEED Adopters OECD Procurement Seminar 12 / 16
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
Tim Simcoe (Boston University) LEED Adopters OECD Procurement Seminar 13 / 16
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)
Tim Simcoe (Boston University) LEED Adopters OECD Procurement Seminar 14 / 16
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)
Tim Simcoe (Boston University) LEED Adopters OECD Procurement Seminar 14 / 16
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)
Tim Simcoe (Boston University) LEED Adopters OECD Procurement Seminar 14 / 16
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
Tim Simcoe (Boston University) LEED Adopters OECD Procurement Seminar 15 / 16
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
Tim Simcoe (Boston University) LEED Adopters OECD Procurement Seminar 15 / 16
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)
Tim Simcoe (Boston University) LEED Adopters OECD Procurement Seminar 16 / 16