Analysis of the Optimal Sharing of Construction Risk in Public Procurement Contracts

Sánchez Soliño, Antonio (2014). Analysis of the Optimal Sharing of Construction Risk in Public Procurement Contracts. "Revista de la Construcción", v. 13 (n. 1); pp. 74-80. ISSN 0717-7925.

Description

Title: Analysis of the Optimal Sharing of Construction Risk in Public Procurement Contracts
Author/s:
  • Sánchez Soliño, Antonio
Item Type: Article
Título de Revista/Publicación: Revista de la Construcción
Date: March 2014
ISSN: 0717-7925
Volume: 13
Subjects:
Freetext Keywords: Incentives; Construction Risk; Public Procurement; Public Works; Risk Aversion
Faculty: E.T.S.I. Caminos, Canales y Puertos (UPM)
Department: Ingeniería Civil: Construcción
Creative Commons Licenses: Recognition - No derivative works - Non commercial

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Abstract

This paper discusses a model based on the agency theory to analyze the optimal transfer of construction risk in public works contracts. The base assumption is that of a contract between a principal (public authority) and an agent (firm), where the payment mechanism is linear and contains an incentive mechanism to enhance the effort of the agent to reduce construction costs. A theoretical model is proposed starting from a cost function with a random component and assuming that both the public authority and the firm are risk averse. The main outcome of the paper is that the optimal transfer of construction risk will be lower when the variance of errors in cost forecast, the risk aversion of the firm and the marginal cost of public funds are larger, while the optimal transfer of construction risk will grow when the variance of errors in cost monitoring and the risk aversion of the public authority are larger

More information

Item ID: 38895
DC Identifier: http://oa.upm.es/38895/
OAI Identifier: oai:oa.upm.es:38895
Official URL: http://revistadelaconstruccion.uc.cl/index.php/rdlc
Deposited by: Memoria Investigacion
Deposited on: 19 Jan 2016 19:06
Last Modified: 12 Jun 2019 08:27
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