Agreements in construction contracts between dient and contractor always depend upon uncertainty. Asymmetric Information and contrasting interests give rise to conflicts between the involved parties; in many cases to be settled before the court. The article illustrates the contractual agreement from the viewpoint of the Principal-Agent Theory, which - within the framework of the New Institutional Economics - aims to develop optimal risk sharing and economic efficiency of contracts. Basics of Moral Hazard and decision theory are presented to show the application of the Principal-Agent Theory within an example. Therefore optimal contracts are achievable, if the contractor's motivation is guided appropriately by means of compensation.
|Translated title of the contribution
|Optimal contract design within construction industry using the principal-agent theory
|Number of pages
|Published - May 2013
All Science Journal Classification (ASJC) codes
- Civil and Structural Engineering
- Building and Construction