ABSTRACT
The contracts governing the private sector’s involvement in the management of networked services1 take a wide variety of forms (World Bank, 2001; Lorrain, 2008b). In order to reduce the risks of asymmetry, of opportunistic behaviour by companies and of regulatory “capture”, the economic theory of regulation has recommended a whole array of solutions: complete contracts, separation between the principal who decides and the agent who executes, independent regulatory agencies (Baldwin et al., 1988). These solutions should have been enough to provide a good balance between the public authorities and private sector firms. However, they have not. One lesson learned from the past 15 years is that rates of contract failure have been high; it is not easy to navigate devaluations, changes in political majorities and economic crises. The international institutions are wondering how to find fixes for orthodox solutions that initially showed every sign of being robust (Harris, 2003; Marin, 2009). Among the new institutional approaches, one which deserves attention is the joint venture, although it runs completely counter to the theories. The central principle on which it rests is not separation between a principal and an agent, or the signature of complete contracts. In joint ventures, the partners cooperate at all levels: they are shareholders in the operating company; they share the management functions; they operate the system in concert. The central principle is co-production. This was a solution that began to develop in China in the water sector in 2002. It was introduced after 15 years of reforms during which the Chinese authorities pragmatically explored all forms of cooperation. Within a few years this approach had increased in importance, to the benefit of French companies, but above all to the advantage of Chinese companies, new entrants to the market. It is an approach that has been implemented in parts of cities in Shanghai, Shenzhen or Chongqing, as well as in smaller cities.
