Promoting cooperation in construction projects: an integrated approach of contractual incentive and trust

Abstract

Contractual incentive and trust are two commonly used governance mechanisms that help to promote inter-organizational cooperation. Little is known, however, about the boundary conditions for the complementation of these two governance mechanisms. The aim is to investigate the interaction of contractual incentive and trust in promoting inter-organizational cooperation. A three-staged Stackelberg model was established and then solved by backward induction. Research results indicate that contractual incentive can motivate the contractor’s task behaviours, while the effect of trust on relational behaviours is path-dependent. Three levels of factors (intra-organizational, inter-organizational and project factors) would affect the selection of the optimal incentive coefficient. Moreover, when the changing rate of the client’s cost of effort is less than or equal to a threshold, contractual incentive and trust can be complementary. The study contributes to theory by offering nuanced insights into the governance mechanisms and addressing the complex contracting issues when mutual trust exists. In addition, this study can help to create favourable circumstances for the complementation between contractual incentive and trust, achieving a better project outcome and relational benefit.