Research on preventing moral hazard of construction project based on information asymmetries

There exists the problem of information asymmetry among the participants in construction project who form economic partnerships one another. Information asymmetries among the participants in construction project places a premium on adverse selection and moral hazard. The major objective of this article is to implement the mechanisms of incentive and monitoring under the framework of principal-agent theory in analysis of moral hazard of construction project and to explore how to prevent it. The optimization model of incentive and monitoring under the circumstance of asymmetric information will be founded on the basis of the analysis of the effect of incentive and monitoring mechanisms in the principal- agent relationship. It indicates that reliability of information can be increased when bringing incentive and monitoring mechanisms into reward contract, which can prevent moral hazard of construction project. © Xiang and Wang.