RESEARCH ARTICLE
Preventing Adverse Selection Risk of Construction Project Based on Signaling
Pengcheng Xiang*, 1, Xiangnan Song2
Article Information
Identifiers and Pagination:
Year: 2014Volume: 8
First Page: 439
Last Page: 443
Publisher ID: TOBCTJ-8-439
DOI: 10.2174/1874836801408010439
Article History:
Received Date: 16/9/2014Revision Received Date: 23/12/2014
Acceptance Date: 31/12/2014
Electronic publication date: 31/12/2014
Collection year: 2014
open-access license: This is an open access article distributed under the terms of the Creative Commons Attribution 4.0 International Public License (CC-BY 4.0), a copy of which is available at: https://creativecommons.org/licenses/by/4.0/legalcode. This license permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.
Abstract
In the construction market, the adverse selection is very prone to occur as a result of the current situation that the two parties’ information is asymmetric, which causes the construction market disorder and uncontrolled market behaviors. For example, in the bidding phase of the project, the owner doesn’t know clearly of the contractor's technical strength, level of management, service quality, and so on; also the contractor is unclear of the owner’s intention of building, financial capacity, and business reputation etc. at the same time, which leads to adverse selection of bidding market because of inaccurate judgment of the actual risk situation and strength of the contractor. In order to preventing this construction project risk ,this paper is to apply asymmetric information theory to project risk management and finally proves that the contractor 's strength can become the deferent signal of the risk type of the contractor through the analysis of the signaling model based on the contractor’s strength. Meanwhile, the owner can judge the risk type of the contractor by acquired the strength and pretended cost of bidding. It is helpful to solve the problem of adverse selection by founding an effective mechanism of signaling, thereby preventing construction project risk.