Game Analysis on Moral Hazard of Construction Project Managers in China

This paper aims to develop a quantitative game model for preventing construction project managers from moral hazard problem from the standpoint of construction enterprises in China. The authors analyze the sources of construction managers’ moral hazard behaviors under China’s specific situation on the basis of the principal-agent theory, establish a game theoretic model to analyze the moral hazard problem between construction enterprises and construction project managers, and calculate the equilibrium solution through building up the payoff matrix. Our crucial contribution is a quantitative characterization of risk deposit system and performance appraisal system which help to resolve the moral hazard problem of construction project managers. The solution results show that the probability of moral hazard problem of construction project managers can be reduced after implementing risk deposit system and performance appraisal system. Thus the two systems we proposed can be taken by China’s construction enterprises as the effective measures to resolve moral hazard problem of construction project managers.