Contracts to manage the stability vs. flexibility trade-off in regional development policies

In times of fiscal constraint and uncertainty, governments need to balance long-term regional development policies seeking to provide certainty for the public and private sector, with the need to adapt these policies to new priorities and innovation. This chapter explores how contracts can be more flexible across levels of government to respond to these challenges, while not compromising stability. It revises the rationale behind the use of contracts for regional development and looks into new insights from contract theory. After assessing how countries are using contracts, the chapter provides some key lessons from frontier thinking and practical experience for policy makers to design more effective contractual arrangements.