Abstract
Communication risk is of crucial importance in construction projects. The situation in which one of the project parties is better informed than another is known as information asymmetry. This problem is addressed by the principal-agent theory. According to this theory, information asymmetries cause three problems: adverse selection, moral hazard, and hold up. The focus here is on strategies for minimizing information asymmetries in the construction phase. A survey of project managers was conducted to establish an understanding of the relative importance of risk-minimization strategies established in the literature: bureaucratic control (contracts), information systems, incentives (bonuses), corporate culture, reputation, and trust. The multi-attribute utility theory was used to analyze the responses. According to the project managers who participated in the survey, trust is the most important strategy in the construction phase, followed by bureaucratic control (contracts) and information systems.
Highlights
The research presented here has evolved in three stages, of which the last one is presented in this paper
The multi-attribute utility theory was used for the calculation of the overall utility functions used to define the ranking of strategies for minimization of risks caused by information asymmetries in the construction phase offered by Schieg (2008)
It is followed by bureaucratic control and information systems
Summary
The research presented here has evolved in three stages, of which the last one is presented in this paper. It was established that the relationship between the two project managers is central to the construction phase itself, which is characterized by risk minimization During this phase, the project owner and contractor play subsidiary roles, which offers an interesting challenge to the principal-agent theory because both project managers are agents, and there is no contract between them. The third and final stage of the project involved another exploratory survey to establish the relative importance of different risk-minimization strategies in the construction phase. Sixth, these results are combined with results of the previous research to arrive at the final ranking of risk-minimization strategies using multiattribute utility theory.
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