Modeling the Hold-up Problem and Absorptive Capacity of Project Networks

The architecture, engineering and construction (AEC) industry has been shown to suffer from poor productivity and innovation performance. This dissertation addresses two main issues that are related to the reasons behind the slow innovation of the industry. One area of potential improvement is to reexamine subcontractor selection strategies during periods of adaptation following the introduction of innovations in the market. Long-term partnerships are promoted by experts from the AEC industry and academia as a means of achieving improved productivity in AEC project networks; however, opportunistic bidding behavior that may accompany its implementation has been largely ignored. I developed an agent-based game theoretic simulation and subsequently conducted a bidding experiment to examine whether opportunistic behavior would emerge in the subcontracting process as a result of relationship-specific investments in knowledge. The findings contribute a new perspective on the hold-up problem in task interdependent inter-organizational networks and empirically demonstrate how opportunistic behavior occurs in the bidding process. I also discuss the different market outcomes that can occur in terms of overall efficiency. Finally the last section extends a simulation model of project network learning to explore the absorptive capacity of project networks where periodic external innovations exist. I utilize this model in a series of simulation experiments to untangle the effects of varying types of innovation and degrees of relational instability in a project network. I establish a measure of project network absorptive capacity and develop an argument that relational instability moderates the project network's absorptive capacity for different types of innovation. These findings have implications for assessing and developing strategies to improve a project organizational network's capacity to absorb and, hence, profit from innovation.