In the last decades performance agreements and contracts have become a more widespread policy tool in the funding of higher education (Strehl et al. 2007; Jongbloed et al. 2008; OECD 2008; Halász 2012). In line with the New Public Management recommendations, performance agreements focus on outputs and outcomes rather than inputs, and therefore they provide an excellent instrument for governments to create incentives without breaching the much acclaimed autonomy of higher education institutions. In addition, performance agreements make possible to concentrate resources on important activities which became an issue in times of financial crises. Finally, agreements have longer time-span providing the much needed possibility of long term planning for institutions. In 2006 performance agreements were introduced in the funding of Hungarian Higher education institutions. In the so-called Three-Year Maintainer's Agreements the government guaranteed a significant amount of funding for three years, while institutions took responsibility to improve their performance in selected indicators (FTT 2011). However, the attempt to modernize the funding of HEIs was generally considered as a failure, and in 2011 it was abolished. In the paper, based on the analysis of policy documents and interviews with institutional managers and policy makers, causes of failure will be explored. Particularly the role of trust will be analysed. While researching trust become important in NPM theory (van de Walle 2010; Bouckaert 2012), the impact of trust on higher education policy drew less attention (Tierney 2006; Vidovich – Currie 2011). The hypothesis of the study is that the level of trust has a significant impact on how policy tools work, which has implications on the possibility of transmission of policy tools between countries with different level of trust as well as on the ‘corruption’ of policy instruments (Lozeau et al. 2002). The study also contributes to the understanding on why post-socialist higher education systems evolve differently than their Western European peers, even if they use similar instruments.

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