and it is common for the revised contract to include the rescheduling of investment commitments (Guasch 2004).<sup>19</sup> Investment figures are also only available for a smaller sample of projects. These tend to be the largest transactions, those involving international investors, and divestitures rather than concessions, generating a biased sample of the population of water PSP contracts.

Henisz and Zelner use service outcomes (the number of lines per capita) as the dependent variable in their analysis of the telecoms sector (Henisz and Zelner 2001). This approach allows the authors to deal with the problem of unproductive investments, but would not allow us to isolate the effect of institutional variables on private investment, rather than public investment. In the water sector, private sector involvement is often relatively recent, and covers only a small section of the population. We would therefore expect the relationship between the level of private sector involvement and infrastructure penetration to be weak and we do not pursue the use of outcomes as a dependent variable. Furthermore, insufficient data are available on the production volumes or population served by projects and those data available come from multiple sources and may be inconsistent and unreliable.

While reliable data on investment volumes (both public and private) or the number of users served by public or private would undeniably yield interesting results and allow for OLS-type regression analysis, this information does not exist on a reliable basis. Anecdotal evidence collected in Asia by the authors indicates that concessionaires sometimes ignore how many people they are serving, while regulators ignore how much concessionaires have invested.

Thus, while the count of projects awarded does not reflect the importance of the private sector in providing water and sanitation services in a particular country, in the context of the present research, it will help explaining the decision of the government and the firm to engage in a partnership, what we have labelled “the handshake”.

A final remark is needed on the difference between signed and active projects. Looking at the data, a small number of projects have been _officially_ terminated, yielding different figures for the number of contracts signed and the number of projects that are currently active. This does not, however, account for the many shades of grey between truly active projects and those that, once signed, are still being discussed, renegotiated, arbitrated, etc (e.g. Suez’ Manila concession can only be counted as terminated since 2005, but has in effect been ‘in distress’ since 1998). The literature and qualitative research undertaken by the authors on concession contracts (Jensen, _forthcoming PhD thesis_ ) reveal that the decision to terminate a contract is very long and complex and we therefore choose to model this separately from the decision to engage in PSP, in forthcoming research.

# _The Independent Variables_

We build a cross section of independent variables (IV) for our sample of 60 countries. Since the DV is the cumulative number of PSP projects awarded over a 15-year period, we use mean values to build the crosssection of IVs. We consider IVs from the following categories:

- **Market Size** : proxied by mean population (1990-2004)

- **Market Risk** : proxied by the ICRG Economic Risk Index (2004)

- **Ability-to-Pay** : proxied by mean GDP per capita (1990-2004)

- **Sector Performance** : proxied by urban “Coverage Gap” (mean urban population multiplied by the inverse of the 2002 WHO water coverage estimate for the urban sector)

- **Public Finance** : proxied by mean Debt/ GNI ratio (1990-2004)

- **Institutions** : proxied by the World Bank governance indicators for government efficiency, rule of law, political stability, control of corruption (all standardised indices) as well as contract enforceability (in number of days to enforce) and the ICRG investment profile index. All values for 2004.

> 19 Field interviews conducted in Manila and Jakarta further substantiate this point.

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