Infrastructure Contracts: Trust and Institutional Updating

Xeni Dassiou () and Jon Stern ()

No 08/06, City University Economics Discussion Papers from Department of Economics, City University, London

Abstract: This paper discusses trust and trust perceptions in infrastructure contracts. We focus on perceptions of the trustworthiness of the government purchasers of infrastructure services (a) by supplying companies and (b) by governments. In particular, we allow for trust misalignments which may give rise to `undertrusting' and `overtrusting'. The core of the paper sets out a game theoretic model of contracts which we use to explore the impact of trust misalignment both on economic efficiency and on investment levels, taking account both of asset specificity issues and maladaptation costs. We explore flexible contracts with and without pre-payments, rigid contracts (which do not allow for post-investment renegotiation) and hybrid contracts. Their efficiency is compared to an incentive compatible benchmark contract. The model is also used to shed light on current issues on the sustainability of private investment infrastructure contracts both in OECD countries (e.g. Private-Public Partnerships) and in developing countries.

Keywords: Contracts; infrastructure; institutions; regulation; trust (search for similar items in EconPapers)
JEL-codes: D02 C78 L14 L51 L78 L97 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cta, nep-dev, nep-pbe and nep-soc
Date: 2008-04
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Related works:
Journal Article: Infrastructure Contracts: Trust and Institutional Updating (2009)
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Persistent link: http://EconPapers.repec.org/RePEc:cty:dpaper:0806

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