Research on the Optimal Dynamic Incentive Contract in the Construction Quality Insurance System

Abstract

With the rapid development of the national real estate industry, we are encountering an unprecedented engineering quality safety challenge in China, and it requires that we should establish the construction quality insurance system to conform to the situation. In order to resolve the moral hazard and adverse selection problems of the contractor in the construction quality insurance system, this article designs a insurance contract with premium differentiation for contractors to be selected where both contractor's types and actions are unobservable, so as to judge their true information in terms of their selecting results and make them work hard. Following the revelation principle, we analyze and solve the model by applying the optimal controlling theory. It could provide further theoretical foundation for the insurer who design the reasonable incentive contract.