CONICET | Buscador de Institutos y Recursos Humanos

This article combines two theoretical streams to build a theoretical model. We depart from the conclusions of the contract theory proposed by Salant and Woroch (1992), who model the governments? incentives to behave opportunistically according to investors? investment profiles. We show that their analysis, which is based on the incentive compatibility principles, explains behaviour differences if the investment profile of the industry is heterogeneous. However, it is no able to explain why industries with similar investment profile in diverse countries have completely different dynamics. This model cannot help to explain, for instance, why regulatory tools applied in Europe for network industries (as natural gas) turn out to generate completely different incentives if compared to Latin America. Stein et al. (2008) underlined the importance of policy stability to understanding the Latin America success (or failure) in implementing policies. Regulation is a key element to implement policy, as explained by the authors. We include the variable policy stability perception as a significant element in the understanding of the government?s incentives to behave opportunistically.We check our model with the case study of natural gas network in Argentina. This analysis contributes to understand the role network industries regulation to deal with hold-up problem and how the institutional environment in which regulatory agencies are embedded matters.