Contracts have been developed to govern the relationship between principal and agent. These contracts are necessary for the principal to exert control over the agent assuming that the interest of both parties are at odds and information asymmetries exist. In the cases of private sector involvement in the expansion of water services in small towns in Mozambique we review in this paper we propose a revised approach to these assumptions. We argue that given the conditions present in small towns a different relationship is developed between private operators and asset holder than it would be the case in bigger, longer contracts for bigger urban centers. In this relationship much more information is exchanged and the objectives are shared, often making the conditions of the contract irrelevant for understanding how services have and will develop, giving more space to relational contracts and other informal arrangements.

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