Optimal Incentive Contract with Asymmetric Cost Information

Yao, Min; Wang, Fang; Chen, Zhiyuan; Ye, Hanrui

doi:10.1061/(asce)co.1943-7862.0001832

Cited by 13 publications

(7 citation statements)

References 37 publications

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“…It demonstrated that the risk-sharing scheme plays an important role in coordinating both parties to choose efficient strategies. Yao et al [42] considered the asymmetric cost information of contractor, and designed a menu of incentive contracts to coordinate the profits of a risk-averse owner and a riskneutral contractor. However, these studies mainly focus on the asymmetric information of project schedule, cost, and quality.…”

Section: Literature Reviewmentioning

confidence: 99%

Incentive schemes for centralized material planning and allocation with asymmetric information in construction supply chain

Wang

Chen

et al. 2024

IEEE Access

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In construction projects, a centralized management mode can effectively address the material management issues. Specifically, the Material Management Department (MMD) is responsible for material purchase, storage, and allocation based on the demand information reported by contractors. However, material demand are best observed by the contractors. They may manipulate the material takeoff (i.e. misrepresent the material demand) to increase the expected material allocation and avoid the project delay. Motivated by this situation, this paper focuses on the incentives to elicit truthful reporting from contractors. Cases of having prior information and no prior information about the material takeoff, as well as priority allocation and proportional allocation policies are considered. Under the case of having prior information, an incentive scheme is designed based on the Groves payment rule, while under the case of no prior information, two incentive schemes are designed based on the proper scoring rules. The comparison and numerical analysis show that the total three incentive schemes can induce the MMD to choose a systemoptimal inventory plan, as well as satisfy the participation constraints of contractors. Besides, the results also demonstrate that prior information is only the prerequisite for implementing the Groves incentive scheme and cannot improve the performance of the whole system in other aspects. INDEX TERMS Construction supply chain, material management, information asymmetry, incentive scheme. HUI LU received the B.Sc. degree in mechatronic engineering from Huazhong Agriculture University, and the Ph.D. degree in systems engineering from the

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Section: Literature Reviewmentioning

confidence: 99%

Incentive schemes for centralized material planning and allocation with asymmetric information in construction supply chain

Wang

Chen

et al. 2024

IEEE Access

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“…The simulation was combined with case studies in three other articles [50,55,56]. Furthermore, the simulation method is used to design optimal incentive contracts [30,[59][60][61][62][63][64][65]. It is also used to explore the impact of other incentive mechanisms, such as cooperation and reputation [66,67].…”

Section: Key Studiesmentioning

confidence: 99%

“…These measures include a definition of incentives for agents. For example, agents are incentivized to honestly report their expenses [68,128] and other important information [96] to finish the work as planned [10,29,30,34,45,46,56,58,60,62,67,70,71,73,79,81,82,88,108], to recover after unforeseen events [56] and to adapt to different project circumstances [61,63,95]. The contract should also include the following: objective criteria for its enforceability [48,49,90], clear intentions of both parties [10,79,82,108], fair risk-sharing [32,86,91,96,101], mechanisms for cost adjustment according to the market situation [59], quality standards, technical specifications and performance specifications [43] and protective measures (guarantees), such as, for example, minimum rates of return, minimum income and maximum cost limits [102].…”

Section: Risks Caused By Information Asymmetry In Construction Projectsmentioning

confidence: 99%

Risks Caused by Information Asymmetry in Construction Projects: A Systematic Literature Review

Ivić

Cerić

2023

Sustainability

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The construction industry has a great impact on the environment and, more than ever, bears responsibility for achieving global sustainability goals. Despite the increasing technological development in the industry, information asymmetry between construction project participants affects communication and causes risks that have the potential to seriously harm project goals. The main objective of this systematic review is to collect and analyze existing scientific papers to summarize knowledge on the risks influenced by information asymmetry in construction projects. The established PRISMA 2020 methodology was used to collect and analyze papers from the two largest databases of scientific literature, Web of Science and Scopus. The coding rules were set up to evaluate the 94 articles that were assessed as eligible. Furthermore, the content analysis was applied with a set of coding rules and with the help of the software Mendeley. This study finds that research on risks caused by information asymmetry is still new, limited and not well connected with theoretical concepts. The most common methods used by researchers are simulation and case study. With a thematic analysis of current knowledge, this study provides a synthesis of identified risks, consequences and mitigation measures, as well as directions for future research.

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“…Therefore, proper contract drafting and administration are essential elements for successful achievement of project objectives [15], [16]. This brought significant attention from both scholars and practitioners to contract design problems recently [17].…”

Section: Introductionmentioning

confidence: 99%

Causal Relationships of Readability Risks in Construction Contracts

Koç

Gürgün

2022

Teknik Dergi

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Issues related to readability risks in contracts could exacerbate conflict, claim and dispute occurrences in construction projects. Determination of root causes of readability risks by defining casual relationships in construction contracts is essential to improve contract documentation and enable successful risk management. This paper aims to differentiate net causes from net effect factors of readability risks in construction contracts. Most significant readability risks in construction contracts were analyzed using fuzzy decision-making trial and evaluation laboratory (DEMATEL) method, which is known for its wide implementation in similar problems. Root cause degree (RCD) diagram was drawn to illustrate the differentiation of these factors by adopting maximum mean de-entropy (MMDE) algorithm. Analysis results indicated that poor grammar use, legal terminology, visual representation, and negative language were the major underlying cause factors; while lengthy document, use of abbreviations, scope complexity, controversial uses, repetitions, and ambiguous words were the net effect factors. The results are expected to improve readability of contract documents, which would contribute to more effective risk management and better allocation of project resources.

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Optimal Incentive Contract with Asymmetric Cost Information

Cited by 13 publications

References 37 publications

Incentive schemes for centralized material planning and allocation with asymmetric information in construction supply chain

Incentive schemes for centralized material planning and allocation with asymmetric information in construction supply chain

Risks Caused by Information Asymmetry in Construction Projects: A Systematic Literature Review

Causal Relationships of Readability Risks in Construction Contracts

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