Infrastructure Contracts: Trust and Institutional Updating
AbstractThis paper discusses trust and trust perceptions in infrastructure contracts and supporting institutions. We focus on perceptions of the trustworthiness of the government purchasers of infrastructure services by the supplying companies and by the governments themselves. In particular, we allow for trust updating and trust misalignments which may give rise to "undertrusting" and "overtrusting". The core of the paper sets out a game theoretic model of contracts with dynamic adjustment of trust perceptions, which we use to explore the impact of trust misalignment both on economic efficiency (measured by expected welfare) and on investment levels. We explore flexible contracts with and without pre-payments, rigid contracts (which do not allow for post-investment renegotiation) and hybrid contracts. We then compare the efficiency of the flexible contracts to that of hybrid contracts using as a criterion the expected welfare implications of each contract. The model is used to shed light on current issues on the sustainability of private investment infrastructure contracts in developed and in developing countries, including the role of regulatory institutions.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Springer in its journal Review of Industrial Organization.
Volume (Year): 35 (2009)
Issue (Month): 1 (September)
Contact details of provider:
Web page: http://www.springerlink.com/link.asp?id=100336
Contracts; Infrastructure; Institutions; Regulation; Trust; D02; C78; L14; L51; L78; L97;
Other versions of this item:
- Dassiou, X. & Stern, J., 2008. "Infrastructure Contracts: Trust and Institutional Updating," Working Papers 08/06, Department of Economics, City University London.
- D02 - Microeconomics - - General - - - Institutions: Design, Formation, and Operations
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
- L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
- L78 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Government Policy
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Littlechild Stephen, 2002.
"Competitive Bidding for a Long-Term Electricity Distribution Contract,"
Review of Network Economics,
De Gruyter, vol. 1(1), pages 1-38, March.
- Littlechild, S.C., 2001. "Competitive Bidding for a Long-term Electricity Distribution Contract," Cambridge Working Papers in Economics 0112, Faculty of Economics, University of Cambridge.
- Jean Tirole, 2009.
"Cognition and Incomplete Contracts,"
American Economic Review,
American Economic Association, vol. 99(1), pages 265-94, March.
- Tirole, Jean, 2009. "Cognition and Incomplete Contracts," Open Access publications from University of Toulouse 1 Capitole http://neeo.univ-tlse1.fr, University of Toulouse 1 Capitole.
- Tirole, Jean, 2008. "Cognition and Incomplete Contracts," IDEI Working Papers 453, Institut d'Économie Industrielle (IDEI), Toulouse.
- John McMillan & Christopher Woodruff, 1998.
"Interfirm Relationships and Informal Credit in Vietnam,"
William Davidson Institute Working Papers Series
132, William Davidson Institute at the University of Michigan.
- John McMillan & Christopher Woodruff, 1999. "Interfirm Relationships And Informal Credit In Vietnam," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1285-1320, November.
- McMillan, John & Woodruff, Christopher, 1998. "Inter-Firm Relationships and Informal Credit in Vietnam," CEPR Discussion Papers 2036, C.E.P.R. Discussion Papers.
- Luis Araujo & Emanuel Ornelas, 2007.
CEP Discussion Papers
dp0820, Centre for Economic Performance, LSE.
- Williamson, Oliver E, 1976. "The Economics of Internal Organization: Exit and Voice in Relation to Markets and Hierarchies," American Economic Review, American Economic Association, vol. 66(2), pages 369-77, May.
- Stéphane Saussier & Claude Ménard, 2000. "Contractual Choice and Performance the Case of Water Supply in France," Revue d'Économie Industrielle, Programme National Persée, vol. 92(1), pages 385-404.
- Pablo T. Spiller, 2008. "An Institutional Theory of Public Contracts: Regulatory Implications," NBER Working Papers 14152, National Bureau of Economic Research, Inc.
- repec:rne:rneart:v:1:y:2002:i:1:p:1-38 is not listed on IDEAS
- Anderson James E & Young Leslie, 2006. "Trade and Contract Enforcement," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 5(1), pages 1-36, November.
- J. Luis Guasch & Stéphane Straub, 2006. "Renegotiation Of Infrastructure Concessions: An Overview," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 77(4), pages 479-493, December.
- Paul Levine & John Stern & Francesc Trillas, 2005. "Utility price regulation and time inconsistency: comparisons with monetary policy," Oxford Economic Papers, Oxford University Press, vol. 57(3), pages 447-478, July.
- de Brux, Julie, 2010. "The Dark and Bright Sides of Renegotiation: An Application to Transport Concession Contracts," Utilities Policy, Elsevier, vol. 18(2), pages 77-85, June.
- Pollitt, Michael & Stern, Jon, 2011. "Human resource constraints for electricity regulation in developing countries: Developments since 2001," Utilities Policy, Elsevier, vol. 19(2), pages 53-60, June.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn) or (Christopher F. Baum).
If references are entirely missing, you can add them using this form.