Institutional Underpinnings of Trustworthiness in Infrastructure Contracts: Trust and Trust Perceptions  Xeni Dassiou and Jon Stern Dept. of Economics, City University, Northampton Square, London EC1V 0HB, U.K. CCRP, City University x.dassiou@city.ac.uk and jon.stern.1@city.ac.uk y March 7, 2008 Abstract This paper discusses trust and trust perceptions in infrastructure con- tracts. 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 e¢ciency and on invest- ment levels, taking account both of asset specicity issues and maladapta- tion costs. We explore exible contracts with and without pre-payments, rigid contracts (which do not allow for post-investment renegotiation) and hybrid contracts. Their e¢ciency is compared to an incentive compati- ble 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. PPPs) and in developing countries.  The authors wish to thank Chris Bolt, Stephen Littlechild, Francesc Trillas, Chris Wal- ters and the January 2008 CCRP Workshop participants for many useful and constructive comments on earlier versions of this paper. The usual disclaimer applies. y Corresponding author.