Incentive mechanism of prefabrication in mega projects with reputational concerns

Abstract

As one of the most important sustainability project management practices, prefabrication has been drawing increasing attention to project construction practitioners. However, due to the needs of high technology and large capital investment, there is a great challenge for suppliers to adopt prefabrication in mega project construction. Therefore, designing an adequate incentive mechanism has become a daunting task for the project owner, which aims to ensure a socially and environmentally friendly project delivery. In this study, an incentive model with reputational concerns from the perspective of the project owner was established and how this incentive affects supplier's effort and project owner's profit was investigated. By contrasting to the incentive model without reputational concerns, when the reputation incentive is considered in the incentive contract, both supplier's effort and project owner's profit increase. In addition, adding reputation incentive implies more expenses, thus the project owner may not want to take this strategy due to the potential expense increase. Therefore, the study also considered an incentive mechanism with constant total incentive intensity. By comparison, the result shows that this strategy is also useful which can improve supplier's effort and project owner's profit.