Study on incentive contract mechanism of construction project under bilateral moral hazard

This article points out that both the project owners and the contractors probably have moral hazard during the period of project construction, establishes a bilateral moral hazard model of “hidden behavior” applying the principal-agent theory. The model analysis shows that when the information is asymmetric, it is efficient to applying the linear contract mechanism of cost plus incentive fee, but the risk-neutral owners and the contractors only implement the second-best effort level. It also receives the conclusion that when the relative impact rate of the contractors on the project cost increases, the cost sharing coefficient of the linear contract increases too.