engleski

The impact of asymmetric information on communication risk in construction projects

Good communication between key participants is essential for the success of every construction project. This involves sharing relevant information between them. It is commonly assumed that all participants cooperate and exchange information in order to achieve project’s goals. However, there is a potential conflict of interests between participants because they all have their own interests, as well. Also, the project owner and the contractor do not have access to all information available to their project managers and vice versa. The two project managers will share information only when they are willing to do so. This situation, in which one of two parties is better informed than the other, is known in economics as the principal-agent problem. In this paper I address the impact of a multiple principal-agent problem on communication risk in construction projects. I focus on communication issues between the project owner and his or her project manager, the contractor and his or her project manager, as well as between the two project managers. These are the key four parties in any construction project. In construction projects, the principal-agent problem is even more pronounced than is usually the case because of their short-term employment relationship. This problem is characterized by three issues concerning the relationship between the principal and the agent: adverse selection, moral hazard, and hold-up. Asymmetric information is common to all three. An exploratory survey was conducted in order to establish an understanding of the relative importance of the above communication risks considered in the literature. The respondents were project managers with considerable experience in the construction field. They agree that the main relationship in a construction project before the contract is signed is that between the project owner and contractor ; however, they point out that the main relationship after the contract is signed is that between the project owner’s and contractor’s project managers. This stands to reason, and yet it is a novel result in the literature on project management.

principal-agent theory; asymmetric information; communication risk; construction projects; project management

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