A Study On Incentive Mechanism Of Construction Project Based On The Theory Of Principal-agent

In the modern project, the formation of a principal-agent relationship was formed between the owners and contractors. Contractors and owners are usually not identical on the objective function, so there is a conflict of interest. Because of the existence of objective information asymmetry, the "Moral Hazard" problem in the principal-agent relationships has always been hot on the theoretical circles and an effective and feasible way to solve the problem is to establish and perfect the incentive mechanism.So this thesis is trying to base on two great theories -Transaction Cost Theory and Principal-agent Theory of the New Institutional Economics, associated with the theory of incentives to analysis the impact of incentive contract to establish incentive mechanism. The improved incentive mechanism can be divided into two parts, which is the project or sub-projects of individual incentive bonuses and integrated incentive bonuses. In individual incentive bonuses, the contract price, period, quality and safety management are discussed. These four factors are the four major objectives of project management; therefore they will play a very important role to the effectiveness of incentive mechanism. Integrated incentive bonuses are mainly embodied in the remuneration package, which also use four factors as the basic indicators. Because these four factors are interrelated, that is the positive change of one indicator may lead to the negative changes of another or more indicators, so it is necessary to use these indicators to assess the contractor's comprehensive performance. Then the terms in consideration of these factors of the FIDIC contract are discussed, and then design a mechanism for encouraging the application of this process. At last the example and case are used to demonstrate the effectiveness of incentive mechanism.