Institutional Underpinnings of Trustworthiness in Infrastructure Contracts; the Trust Case

Dassiou, X. & Stern, J. (2007). Institutional Underpinnings of Trustworthiness in Infrastructure Contracts; the Trust Case. Paper presented at the International Conference “Public-Private Partnerships, Competition and Institutions”, 07-12-2007 - 08-12-2007, Pantheon-Sorbonne, Paris, France.

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This paper discusses trust and trust perceptions in infrastructure contracts. 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 misalignments which may give rise to ëundertrustingíand ëovertrustingí. 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 e¢ ciency (measured by expected welfare) and on investment levels. We explore áexible contracts with and without pre-payments, rigid contracts (which do not allow for post-investment renegotiation) and hybrid contracts. We then compare the e¢ ciency of the áexible 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.

Item Type: Conference or Workshop Item (Paper)
Additional Information: The final publication is available at Springer via
Subjects: H Social Sciences > HB Economic Theory
Divisions: School of Social Sciences > Department of Economics

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