Moral hazard and construction procurement: A conceptual framework

Moral hazard and construction procurement : A conceptual framework

Eriksson, Per Erik (author): Luleå University of Technology,Department of Business Administration, Technology and Social Sciences

(creator_code:org_t)

KTH Royal Institute of Technology, 2015
English 26 s.
Series: Working Paper Series, Department of Real Estate and Construction Management & Centre for Banking and Finance (cefin) ; 15/2

Related links:: https://kth.diva-por... (primary) (Raw object); show more...; https://urn.kb.se/re...; show less...

Abstract Subject headings

The first aim of this paper is to clarify the meaning of moral hazard in the context ofconstruction procurement. Two important points are that typically there is a doublemoral hazard problem, as the client also can “misbehave” in a number of ways, andthat both internal moral hazard (within the client and contractor organization) andexternal moral hazard (between client and contractor) must be handled.The second aim of the paper is to give an overview of strategies to reduce the risk ofmoral hazard. Eight different strategies are identified: 1) “the shadow of the future”,promises of future work if effort is high 2) selection mechanism forcontractor/employee, 3) length of contract, length of warranties, 4) level of detail inthe contract, 5) payment systems, 6) monitoring intensity, 7) social norms, and 8)relation specific investments.At the end of the paper a number of questions for future research are identified. Canthe strategies be grouped into an ideal type of hard/formal strategies (with e.g.detailed contracts, more monitoring, and choose the bidder with the lowest price)and soft/informal strategies (with e.g. long term relations and more flexiblecontracts)? How are methods used internally and methods used externally to reducemoral hazard related? What are the differences in these respects between privatesector procurement and public sector procurement methods?

About the subject

Kungliga biblioteket hanterar dina personuppgifter i enlighet med EU:s dataskyddsförordning (2018), GDPR. Läs mer om hur det funkar här.
Så här hanterar KB dina uppgifter vid användning av denna tjänst.