Incentive Mechanism Design In Project Management Based On Outside Option,Cost Salience And Market Competition

With the development of market economy,project management is facing unprecedented opportunities and challenges.In project management,companies usually hire the project manager who has outside options and private information about his management expertise and efforts;in the process of project subcontracting,project managers may encounter the problem of project delays because of contractor’s cost salience;with the fierce competition for excellent project managers,how to design an attractive and competitive contract is also an urgent issue for the focal company to consider.Therefore,it is meaningful to study the optimal incentive mechanism when the project manager has different outside options,the contractor has cost salience,and competing companies invade.The main research contents are as follows:Firstly,when the project manager has an outside option dependent on his private management expertise information and unobservable efforts,the design of optimal incentive mechanism by using the critical value criterion is investigated.Principal-agent models under four information structures are established.Afterwards,by comparing the optimal solutions under four kinds of information structures,the effects of asymmetric information,risk attitude,ability-effort-dependent outside option are explored.The results demonstrate that the contract strategy can be formulated according to the relationship between the project manager’s risk attitude and the internal and external project’s uncertainty.Surprisingly,when the project manager is risk loving,the existence of ability-effort-dependent outside option results in that information asymmetry has on impact on the company’s optimal expected profit.Secondly,in the presence of contractor’s psychology of cost salience,how to design the optimal deadline-based incentive contract for the contractor is investigated.The principal-agent models under different information cases in the absence/existence of contractor’s cost salience are established.Afterwards,by comparing the optimal results between the case in the absence of cost salience and that in the existence of cost salience among different information cases,the impact of cost salience and dual information asymmetry on incentive contract and the project manager’s profit are derived.The results show that moral hazard can reduce the loss to project manager caused by cost salience,and when the contractor’s marginal effort output and risk aversion degree are higher,the project manager is better off in screening the contractor’s private cost salience information.Finally,in the presence of market competition,from the perspective of focal company,the optimal career incentive for the project manager is investigated.Consider that two heterogeneous companies compete for the same project manager who has private information about project profitability level and unobservable efforts.The principalagent models under eight scenarios,i.e.,combination of the cases of with and without asymmetric information,with and without career incentive,with and without market competition,are established.By comparing the optimal solutions under eight scenarios under the equilibrium,the optimal condition to adopt career promotion mechanism is given.Moreover,the managerial suggestions and contract decision support that the focal company should follow are given when confronting information asymmetry and the invasion of competing company in practical project management.