Abstract
In the construction market, the adverse selection is very prone to occur as a result of the current situation that the two parties’ information is asymmetric, which causes the construction market disorder and uncontrolled market behaviors. For example, in the bidding phase of the project, the owner doesn’t know clearly of the contractor's technical strength, level of management, service quality, and so on; also the contractor is unclear of the owner’s intention of building, financial capacity, and business reputation etc. at the same time, which leads to adverse selection of bidding market because of inaccurate judgment of the actual risk situation and strength of the contractor. In order to preventing this construction project risk ,this paper is to apply asymmetric information theory to project risk management and finally proves that the contractor 's strength can become the deferent signal of the risk type of the contractor through the analysis of the signaling model based on the contractor’s strength. Meanwhile, the owner can judge the risk type of the contractor by acquired the strength and pretended cost of bidding. It is helpful to solve the problem of adverse selection by founding an effective mechanism of signaling, thereby preventing construction project risk.
Highlights
D Under the condition of asymmetric information, the agent E may rely on their information advantage to perform some adverse behavior for their own benefit, which raises the twoT central problems in asymmetric information theory: adverse selection and moral hazard [1]
C project, the various project participants involved always use their information advantage to perform some adverse behavior for their own benefit, which will lead to the project
Asymmetric information theory came into being in the 1970s, and had been studied since the pioneering work of the paper of “ The Market for "Lemons": Quality Uncertainty and the Market Mechanism” published by George Akerlof, which marks the beginning of the application of the information asymmetry in the commodity market and the beginning of the adverse selection theory [7]
Summary
D Under the condition of asymmetric information, the agent E may rely on their information advantage to perform some adverse behavior for their own benefit, which raises the two. T central problems in asymmetric information theory: adverse selection and moral hazard [1]. C project, the various project participants involved always use their information advantage to perform some adverse behavior for their own benefit, which will lead to the project. T to opportunistic behavior, namely adverse selection and moral hazards, which is the primary cause of breaking faith. E in the construction market and essentially drives construction Rproject risk [2, 3]. The adverse selection caused by asymmetric information leads the Pareto optimality can not be achieved. If the party owned private information has way to pass his own information to the other one or the latter has way to induce the former to provide his private information and the transaction Pareto improvement can be achieved successfully, which is the so called signaling [4,5,6]
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callMore From: The Open Construction and Building Technology Journal
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
