Key point: taking rural infrastructure projects as their focus, the authors develop a theory of institutional incentives based on bounded rationality. They argue that, once public infrastructure is constructed, it can best be maintained and serviced when users or recipients of that public good or service find it in their best interest to contribute to its continuation. Thus, institutions should be constructed so as to incorporate this rationality of actors; they must avoid creating incentives to ignore time and place-specific information, to shirk, to be corrupt, to free-ride, to engage in rent-seeking, and to avoid monitoring. These incentives are not conducive to sustainability because they weaken the institutional performance in terms of efficiency, fiscal equivalence, redistribution, accountability, or adaptability.
*the dysfunctional institutional forms include (1) provision (selection, financing, administration, etc.) and/or actual production of infrastructure by a single, national government, (2) various forms of deconcentration, and (3) exclusive reliance on the market.
*the authors model for correcting this and fostering sustainable rural infrastructure development emphasizes polycentric institutional arrangements, linking together public and private authorities at the national, regional, and local level, through the promotion of contractual relationships.
**polycentric institutional arrangements have the potential to capture the economies of scale of centralized institutions while minimizing information costs and perverse incentives.
**based on the principle that the group of people experiencing a problem should pay for the public good or service provided to resolve that problem.