Modeling the Decision-making of Real Estate Developers in the Building Energy Efficiency (BEE) Market- A Game Theoretical Model from Transaction Costs Perspective

Abstract

Modeling BEE market with game theory can provide insights on the interactions amongst the different stakeholders, possible choices and likely outcomes available to them in different scenarios. Competition between the developers is an important aspect determining the supply of BEE in the market. This implies that if the demand and price of BEE are exogenous, then the developers have no options but to compete with each other and reduce the cost of BEE in order to maximize their profits. Moreover, there are many factors both rational and irrational, such as information asymmetry, opportunistic behavior, ill-informed users, lacking mandatory requirements, etc., which incur different level of transaction costs. This may affect the willingness of the developers to take part in BEE market. Therefore, this study is to look into the developer\'s decision-making on BEE in two different scenarios: 1. without considering transaction costs; 2. with transaction costs into consideration. By modeling the game between developers over BEE investment, we will investigate the mechanism of competition between developers, look into the transaction costs impacts on game equilibrium. The findings will support some of the transaction cost theoretical statements under the BEE real estate development scenario using the game model, and effectively explain what the mind-set of the developers is and how their decision-making of BEE is reached. The findings will also help draw policy implication on how to increase the willingness to supply from the developers by reducing the market transaction costs.