Government green procurement spillovers: Evidence from municipal building policies in California

• Municipal green-building procurement rules promote supplier entry and specialization.
• Growth of specialized input markets promotes private-sector green certification.
• Green-building procurement policies have regional spill-over effects.

We study how government green procurement policies influence private-sector demand for similar products. Specifically, we measure the impact of municipal policies requiring governments to construct green buildings on private-sector adoption of the US Green Building Council׳s Leadership in Energy and Environmental Design (LEED) standard. Using matching methods, panel data, and instrumental variables, we find that government procurement rules produce spillover effects that stimulate both private-sector adoption of the LEED standard and investments in green building expertise by local suppliers. These findings suggest that government procurement policies can accelerate the diffusion of new environmental standards that require coordinated complementary investments by various types of private adopter.