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Vertical governance of construction projects: an information cost perspective

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  • Kaixun Sha

Abstract

A research framework is developed to analyse the vertical governance, or transaction relationships between the client and its first-tier suppliers of construction projects in terms of project procurement route and payment terms. Starting from the particularity of the construction industry, reduced treatments that Williamson used in governance structure analysis are revised, and an assumption of ‘second-order transformation’ is proposed: as the information gap reaches a given level, and the proportion of specialized knowledge to deal with uncertainty exceeds a certain degree, the approach of selecting the governance structure of construction projects might deviate from the path anticipated by canonical theories. Both uncertainty and information cost are included in the analysis framework, and a principal–agent model is developed to analyse the procurement route and payment terms of construction projects. It is concluded that the information gap and the relative cost coefficient of information are decisive factors that determine the vertical governance structure of construction projects. They determine not only the time when ‘second-order transformation’ occurs, but also the distribution of ‘weak incentive regions’.

Suggested Citation

  • Kaixun Sha, 2011. "Vertical governance of construction projects: an information cost perspective," Construction Management and Economics, Taylor & Francis Journals, vol. 29(11), pages 1137-1147.
    • Handle: RePEc:taf:conmgt:v:29:y:2011:i:11:p:1137-1147
    DOI: 10.1080/01446193.2011.637939
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    Cited by:

    1. Ceric Anita & Ivic Ivona, 2021. "Network analysis of interconnections between theoretical concepts associated with principal–agent theory concerning construction projects," Organization, Technology and Management in Construction, Sciendo, vol. 13(1), pages 2450-2464, January.
    2. Yongcheng Fu & Yongqiang Chen & Shuibo Zhang & Wenqian Wang, 2015. "Promoting cooperation in construction projects: an integrated approach of contractual incentive and trust," Construction Management and Economics, Taylor & Francis Journals, vol. 33(8), pages 653-670, August.
    3. Gabriel Castelblanco & Jose Guevara & Harrison Mesa & Diego Flores, 2020. "Risk Allocation in Unsolicited and Solicited Road Public-Private Partnerships: Sustainability and Management Implications," Sustainability, MDPI, vol. 12(11), pages 1-28, June.

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