A Challange for the European Union: Public-private-innovationparterships

Simone Andersen & Christina Haaning

Student thesis: Master thesis


The purpose of this thesis is to analyse how (if at all) the European Union can overcome societalchallenges and secure a dominant position on the global market as an important player when itcomes to scientific and technological progress.It is pointed out that a specific measure to achieve this goal is the use of Public-Private-Innovationpartnerships (PPI’s), where a public authority and private partners corporate to create innovativesolutions for the public sector, and hereby, consequently, lift the scientific and technological level ofthe public sector. Procurement in the public sector is responsible for 19% of the European UnionGDP, which makes it a very relevant measure to secure the European Union a dominant position onthe global market.The problems subject to the analysis are the legal barriers and economical implication that preventPPI’s from occurring within the internal market. The legal barriers consist of the fact that the awardof public contracts by or on behalf of Member States’ authorities might not comply with the principleof equal treatment in the situation where a public authority purchase the innovative solution producedfrom the PPI’s, due to the close cooperation during the development of the innovative solution. Theeconomic implications consist of problems related to how EU can provide incentives for creatingPPI’s, without undermining the efficient and effective competition within the internal market.These questions will be analysed in turn. Firstly, by assessing the legal consequences of a solutiondeveloped in a PPI’s, it will be examined whether it will comply with the principle of equal treatmentif the aforementioned solution is subject to public procurement. Secondly, by examining how themarket structures monopoly and perfect competition affect the static and dynamic efficiency ofcreating innovation, and, by using the Coase theorem and Pigou’s theory of externalities, analysingwhy there is a lack of PPI’s in the internal market.The analysis shows that, in order to comply with the principle of equal treatment in the Directive onPublic Procurement, Article 57(4), litra f, public authorities have to either (1) exclude the privatepartner from bidding, or (2) have to publish all information. Furthermore, the analysis shows thatparties are prevented from reaching a Pareto-optimal scenario when joining a PPI, because of thetransaction costs and unclear property rights related to joining a PPI. These effects can be mitigatedor overcome by compensating the parties and by distributing property rights from the beginning, and,consequently, making them less unclear. Furthermore, to make sure that PPI’s that are sociallyoptimal are created, an additional compensation should be awarded the parties.In this thesis, a solution based on Pigou – that is, where compensation is provided by property rights– is suggested, and an efficient way for the European Union to compensate and distribute propertyrights between the parties, is recommended. Regarding the latter, it is concluded that property rightsought to be distributed to the private partner under conditions of forced licenses within the internalmarket and free internal use for public authorities. The conditions are suggested with the purpose toavoid monopolies to be established, whilst still providing incentives in the form of ex post profits forprivate partners. In order to make this distribution, and to impose such conditions on parties, thecurrent Directive on Public Procurement has to be amended. This thesis suggests that suchamendments should allow private partners to participate in the procurement of innovative solutions,without being excluded from, or having a full disclosure condition attached to the participation. Suchan amendment will (whilst keeping the Directive in compliance with the principle of equal treatment)allow private partners to receive an advantage.In conclusion, this thesis suggests that the European Union can acquire a dominant position on theglobal market of scientific and technological progress, if the suggested changes to property rightsand to the current Directive on Public Procurement are implemented.

EducationsMSc in Commercial Law, (Graduate Programme) Final Thesis
Publication date2019
Number of pages129
SupervisorsChristina D. Tvarnø & Kalle Johannes Rose