Trust as a Basic Element of the Institutional Environment for the Production of Local Public Goods

The article analyzes the role of trust in improving the efficiency of the production of local public goods, taking into account the problem of contract process management and the level of transaction costs. The mechanism of implicit contracting between the producer (the State) and the consumer (citizens) in the production of a certain volume of public goods and services of the appropriate quality in exchange for implicit payment through the taxation procedure is disclosed. This type of contract has been identified as a form of relationship contract, which, unlike standard agreements, is characterized by certain peculiarities. The specifics of the relationship contract in the sphere of production of public goods are characterized, and its features are allocated, including: uncertainty, asymmetry of information, limited freedom of choice of the consumer, presence of a temporary gap in the possibility of implementing the strategic advantages of the parties. It is displayed that such a contract creates ample opportunities for the implementation of pre- and post-contract opportunism by public authorities and leads to an increase in transaction costs. It is proposed to solve the problems of collective interaction in the production of public goods by transferring the production of as much public goods as possible to the local level and incorporating into these relations, along with the State, the local communities, which are characterized by the institutional proximity of its members based on trust. The mechanisms for formation of trust in local communities by creating associations, alliances, and implementing project relationships are considered. Based on an analysis of the experience of the implementation of a joint project of the European Union and the UN Development Program «Local Development focused on the Community» (LDC) demonstrated the increased efficiency of production of local public goods in those communities that had high rates regarding the trust and managed to organize themselves for solving the problems of local development.