Analysis of Adverse Selection for Motivation Mechanism in Engineering Project Cost Management

摘要

When the principal-agent contracts for design, supervision and construction of an engineering project are signed, the agent and the principal have hidden information. By means of tendering and negotiation, etc., it selects an agent offering a lower quotation which leads to "Bad money drives out good", that is, commonly termed adverse selection problem. This study starts from the discussion of adverse selection and introduces a motivation mechanism to motivate the agent to exert initiative strategies more efficiently so that the agent can expose its hidden information automatically. The study also analyzes the project principal-agent strategies and finally uses a calculation example to demonstrate that the motivation mechanism in this study is efficient in inducing the agent to tell the truth, which aids the principal in selecting an agent with higher operational level.