Contractual Governance On Contractors’ Tunneling Under PPP Mode

Public-private partnership projects has been playing a significant role in the national economy for these years.However,extensive management mode of PPP projects leads to many issues like poor quality and cost overrun.Due to information asymmetry and the incompletion of contracts,contractors are likely to tunneling to achieve benefit maximization after signing contracts with owners.Based on the formal contracts and relational contracts,contractual governance could be an effective way to take precautions on contractors’ tunneling.Besides introducing incentive mechanism can help promote contractors’ motivation,resulting in a huge increase of value creation.Based on principal-agent theory,contractual governance and incentive mechanism,this paper study on contractual governance on contractors’ tunneling under PPP mode.First establish a framework of contractual governance,stating out the importance of formal contracts and relational contracts.Then introduce incentive mechanism under the framework established.Taking into account the importance of each task,the ability of the contractors,the impact of fairness preferences and other information,it reconstruct the H-M model to help owners to choose the best incentive intensity to drive the contractors’ effort.Finally use Matlab software to simulate the effects of each factor on the optimal solution and find out the sensitivity factors.Main conclusions are as followed:First,when it comes to low risk aversion degree,low contractors’ effort cost together with low environment uncertainty,incentive mechanism owners choose can gain obvious effect.Second,consideration of fairness preference of contractors have impact on the incentive mechanism.Owners should raise the sharing coefficient when contractors have fairness preference even though it may come to the fact that contractors would not improve their effort greatly.So the best choice for owners should keep their profit information in private.Third,contractors would benefit a lot from the relational contracts,but research shows that not all contractors will like this kind of contracts because their low ability can not match the basic requirement of the owners.If they fail to fulfill the task,owners will never take them into consideration in the future.This tells us that owners should pay more attention on the selection of contractors.