Explaining the determinants of contractual inefficiencies: the case of water provision in Saltillo, Mexico

Abstract

Public-private partnerships to provide services are a relatively new policy initiative in Mexico, and have shown contrasting results. This research has endeavored to analyze the possible determinants behind the failure, or the success, of the choice of a specific mode of service provision. By using contracting literature based on transaction costs, and looking specifically at the case of AGSAL, a joint venture established between Saltillo, a northern Mexican city, and INTERAGBAR, a private investor, for the provision of water, this study showed that characteristics of the transaction at stake. More specifically, it showed that specificity of the investments that support a given transaction, the unanticipated changes in circumstances surrounding an exchange, either from physical assets or its ownership rights, and the frequency and duration with which parties engage in the transaction.