Study on the project supervision system based on the principal-agent theory
Abstract: In order to solve
problems in the current project management system, the paper presents the
asymmetric information games existing in construction projects through
information economics viewpoints.
Design/methodology/approach: The owner has private information about the
project profitability and he exerts an unobservable level of effort in order to
increase the feasibility of successfully completing the project in terms of
meeting product specifications. The paper analyzes the principal-agent relationship
between the owner and supervisor with “principal-agent theory” of the game
theory. In addition, the paper validates the model through two project cases.
Findings: We can conclude that the incentive contract plays an important
role in reducing the moral hazard. The main contribution of this studyis to
examine the influence of both pre-contractual private information and the
sensitivities between the interrelated performance measures on the design of an
optimal incentive contract.
Social implications: At last, some advices are put forward to advance the
project management system in China, and some external mechanism can effectively
inhibit the"moral hazard" and "adverse selection" to occur.
Originality/value: A model of principal-agent relationship between the
owner and supervisor is formulated. This model takes consideration of the moral
hazard, which isdifferent from most existing researches in this field.
Author: Runtong Zhang, Yang
Zhou, Hongnan Zhuang, Xiaomin Zhu
Journal Code: jptindustrigg150039
