Government regulation strategies for inhibiting opportunistic behaviors in construction projects

Abstract

The construction industry has long been criticized for recurring accidents, wherein opportunistic behaviors are the primary cause of losing faith and increasing risk, infringing upon the interests of the state, society and people. While government regulation can be crucial in curbing opportunistic behaviors, the existing mixed strategy game model fails to accurately capture the strategic interactions between the government, owner, supervisor, and contractor. To bridge this gap, we propose a multi-stage dynamic game model with asymmetric information in the context of a typical construction project, wherein two urgent opportunistic behaviors may arise: moral hazard and covert collusion. According to project characteristics, the regulatory issues are further classified as hidden information for general projects and hidden effort for dominant projects. On this basis, the government's optimal regulation strategies are derived, i.e., the optimal fines for poor quality and the optimal fine coefficient for quality effort reduction. Subsequently, several significant managerial implications are presented to summarize and analyze impacts of government regulation on construction projects. The findings show that government regulation can achieve systemic optimality but may hurt the owner's interests in some cases. This could potentially hinder the healthy development of the construction industry as the owner may forgo purchasing the construction project. Furthermore, general projects are more vulnerable to opportunistic behaviors as opposed to dominant projects. The developed model and derived regulatory strategy can assist the government in more effectively governing and controlling opportunistic behaviors. This research also contributes several valuable managerial insights into the domain of government regulation on construction projects.