Moral hazard and adverse selection in Chinese construction tender market A case of Wenchuan earthquake

Moral hazard and adverse selection in Chinese construction tender market A case of Wenchuan... Purpose – The purpose of this paper is to understand the root cause of a large number of quality problems in the current Chinese construction market. Design/methodology/approach – Information economics theory is used to analyze the cause of construction quality problems related to the specific case of the Wenchuan earthquake of China. Findings – The single low price competition in the construction tender market leads to the serious adverse selection and moral hazard behavior of bidding firms. The main solution to this problem is the introduction and improvement of an independent inspection/supervision mechanism. Originality/value – The paper systematically analyzes the evaluation method of the lowest price winning bidding policy, which is the fundamental cause of adverse selection and moral hazard problems in the Chinese construction market. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Disaster Prevention and Management Emerald Publishing

Moral hazard and adverse selection in Chinese construction tender market A case of Wenchuan earthquake

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Publisher
Emerald Publishing
Copyright
Copyright © 2011 Emerald Group Publishing Limited. All rights reserved.
ISSN
0965-3562
DOI
10.1108/09653561111161699
Publisher site
See Article on Publisher Site

Abstract

Purpose – The purpose of this paper is to understand the root cause of a large number of quality problems in the current Chinese construction market. Design/methodology/approach – Information economics theory is used to analyze the cause of construction quality problems related to the specific case of the Wenchuan earthquake of China. Findings – The single low price competition in the construction tender market leads to the serious adverse selection and moral hazard behavior of bidding firms. The main solution to this problem is the introduction and improvement of an independent inspection/supervision mechanism. Originality/value – The paper systematically analyzes the evaluation method of the lowest price winning bidding policy, which is the fundamental cause of adverse selection and moral hazard problems in the Chinese construction market.

Journal

Disaster Prevention and ManagementEmerald Publishing

Published: Aug 30, 2011

Keywords: China; Construction industry; Moral hazard; Adverse selection; Construction tender market; Wenchuan earthquake

References

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