Incentive mechanism design for promoting high-level green buildings

Abstract

Green building (GB) incentives help address the barriers in GB development. After years of practice, the GB market is becoming mature; thus, these incentives should be adjusted to adapt to the market transformation. However, adjusting incentives can affect stakeholders' motives and concerns, which in turn influence stakeholders' attitudes towards green buildings. Therefore, going back to the basics and understanding how an incentive scheme works before implementing any adjustment are important for policymakers. This study aims to reveal how incentive mechanism design affects stakeholders’ choices of GB levels in tangible and intangible ways. The Gross Floor Area Concession Scheme implemented in Hong Kong is selected as a case study. Cost–benefit analysis, particularly transaction cost, and the analytical hierarchy process method are used to evaluate the costs and benefits in terms of monetary value and importance. Then, a causal loop diagram is constructed to explain the incentive mechanism. Results show that although actual costs and benefits are more important than hidden ones, transaction cost can be a decisive factor for selecting GB levels. Cost–benefit analysis with transaction cost considerations should be conducted to improve GB incentives. In addition, fast sales of high levels of GB can be a critical compensation for extra costs. Alternatives for improving incentives are also provided based on the findings. This study helps enrich the incentive mechanism for promoting high levels of GB. It provides empirical evidence on the magnitude of transaction cost and proves the soundness of conducting a holistic cost–benefit analysis by incorporating transaction cost.