IDEAS home Printed from https://ideas.repec.org/p/phs/dpaper/201213.html
   My bibliography  Save this paper

Signaling and Contract Cost Under Weak Governance : Water Service Privatization in Metro-Manila, Philippines

Author

Listed:
  • Raul V. Fabella

    (University of the Philippines School of Economics)

Abstract

Many supply contracts between the state and private agents in a developing country are cost-re-imbursement variety and are rolled out under weak and unreliable governance. The latter has to be provided for through higher supply cost. The state in turn can lower the contract cost by providing verifiable credible commitments of its intentions. We show using a modified the Laffont-Tirole cost-reimbursement contract model that the more reliable is the state in respect to the delivery of its contractual obligations, the lower the cost of contracts to the state and society. We argue that the various actions taken by the Philippine government before the privatization of the water service in Metro Manila in 1997, viz., the substantial increase in the tariff, the reduction in the labor complement by 30% and the outsourcing of the dispute resolution mechanism to an international appeals panel, induced entry and aggressive bidding by the contenders that dramatically reduced the cost to the public of the water services concession contract in Metro Manila, Philippines.

Suggested Citation

  • Raul V. Fabella, 2012. "Signaling and Contract Cost Under Weak Governance : Water Service Privatization in Metro-Manila, Philippines," UP School of Economics Discussion Papers 201213, University of the Philippines School of Economics.
    • Handle: RePEc:phs:dpaper:201213
    as

    Download full text from publisher

    File URL: http://www.econ.upd.edu.ph/dp/index.php/dp/article/view/696
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. North, Douglass C. & Weingast, Barry R., 1989. "Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England," The Journal of Economic History, Cambridge University Press, vol. 49(4), pages 803-832, December.
    2. Dani Rodrik & Arvind Subramanian & Francesco Trebbi, 2004. "Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development," Journal of Economic Growth, Springer, vol. 9(2), pages 131-165, June.
    3. Williamson, Oliver, 2009. "The Theory of the Firm as Governance Structure: From Choice to Contract," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 6, pages 111-134, December.
    4. Mr. Arvind Subramanian & Mr. Francesco Trebbi & Mr. Dani Rodrik, 2002. "Institutions Rule: The Primacy of Institutions over Integration and Geography in Economic Development," IMF Working Papers 2002/189, International Monetary Fund.
    5. Williamson, Oliver E, 1983. "Credible Commitments: Using Hostages to Support Exchange," American Economic Review, American Economic Association, vol. 73(4), pages 519-540, September.
    6. Easterly, William & Levine, Ross, 2003. "Tropics, germs, and crops: how endowments influence economic development," Journal of Monetary Economics, Elsevier, vol. 50(1), pages 3-39, January.
    7. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, April.
    8. Michael Spence, 1973. "Job Market Signaling," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 87(3), pages 355-374.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Cheryl Xiaoning Long, 2010. "Does the Rights Hypothesis Apply to China?," Journal of Law and Economics, University of Chicago Press, vol. 53(4), pages 629-650.
    2. Ashok Chakravarti, 2012. "Institutions, Economic Performance and the Visible Hand," Books, Edward Elgar Publishing, number 14751.
    3. Djankov, Simeon & Glaeser, Edward & La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei, 2003. "The new comparative economics," Journal of Comparative Economics, Elsevier, vol. 31(4), pages 595-619, December.
    4. Jamasb, T. & Mota, R. & Newbery, D. & Pollitt, M., 2004. "‘Electricity Sector Reform in Developing Countries: A Survey of Empirical Evidence on Determinants and Performance’," Cambridge Working Papers in Economics 0439, Faculty of Economics, University of Cambridge.
    5. Keefer, Philip, 2004. "A review of the political economy of governance : from property rights to voice," Policy Research Working Paper Series 3315, The World Bank.
    6. Haggard, Stephan & Tiede, Lydia, 2011. "The Rule of Law and Economic Growth: Where are We?," World Development, Elsevier, vol. 39(5), pages 673-685, May.
    7. Alice Sindzingre, 2005. "Explaining Threshold Effects of Globalization on Poverty: an Institutional Perspective," WIDER Working Paper Series RP2005-53, World Institute for Development Economic Research (UNU-WIDER).
    8. Lederman, Daniel & Saenz, Laura, 2005. "Innovation and development around the world, 1960-2000," Policy Research Working Paper Series 3774, The World Bank.
    9. Ahmet Faruk AYSAN & Mustapha Kamel NABLI & Marie‐Ange VÉGANZONÈS‐VAROUDAKIS, 2007. "Governance Institutions And Private Investment: An Application To The Middle East And North Africa," The Developing Economies, Institute of Developing Economies, vol. 45(3), pages 339-377, September.
    10. Grimm, Michael & Klasen, Stephan, 2007. "Geography vs. Institutions at the Village Level," Proceedings of the German Development Economics Conference, Göttingen 2007 9, Verein für Socialpolitik, Research Committee Development Economics.
    11. Kilby, Christopher, 2005. "World Bank lending and regulation," Economic Systems, Elsevier, vol. 29(4), pages 384-407, December.
    12. Gino A.Gancia, 2003. "Globalization, Divergence and Stagnation," Development Working Papers 174, Centro Studi Luca d'Agliano, University of Milano.
    13. Anne D. Boschini & Jan Pettersson & Jesper Roine, 2007. "Resource Curse or Not: A Question of Appropriability," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(3), pages 593-617, September.
    14. Pierre-Guillaume Méon & Laurent Weill, 2004. "Does better governance foster efficiency? An aggregate frontier analysis," Economics of Governance, Springer, vol. 6(1), pages 75-90, January.
    15. Frankel, Jeffrey A. & Vegh, Carlos A. & Vuletin, Guillermo, 2013. "On graduation from fiscal procyclicality," Journal of Development Economics, Elsevier, vol. 100(1), pages 32-47.
    16. Guido Tabellini, 2010. "Culture and Institutions: Economic Development in the Regions of Europe," Journal of the European Economic Association, European Economic Association, vol. 8(4), pages 677-716, June.
    17. Rodríguez-Pose, Andrés & Ketterer, Tobias, 2016. "Institutions vs. ‘First-Nature’ Geography – What Drives Economic Growth in Europe’s Regions?," CEPR Discussion Papers 11322, C.E.P.R. Discussion Papers.
    18. Pierre Malgrange & Patrick Plane, 2008. "Économie du développement et de la transition : présentation générale," Economie & Prévision, La Documentation Française, vol. 0(5), pages 1-10.
    19. Lora, Eduardo, 2005. "Should Latin America Fear China?," IDB Publications (Working Papers) 4367, Inter-American Development Bank.
    20. Kogel, Tomas, 2005. "Youth dependency and total factor productivity," Journal of Development Economics, Elsevier, vol. 76(1), pages 147-173, February.

    More about this item

    Keywords

    signaling; credible commitment; procurement contracts; weak governance;
    All these keywords.

    JEL classification:

    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:phs:dpaper:201213. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: RT Campos (email available below). General contact details of provider: https://edirc.repec.org/data/seupdph.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.