Moral hazard and adverse selection in Chinese construction tender market: A case of Wenchuan earthquake

Abstract

Purpose

The purpose of this paper is to understand the root cause of a large number of quality problems in the current Chinese construction market.

Design/methodology/approach

Information economics theory is used to analyze the cause of construction quality problems related to the specific case of the Wenchuan earthquake of China.

Findings

The single low price competition in the construction tender market leads to the serious adverse selection and moral hazard behavior of bidding firms. The main solution to this problem is the introduction and improvement of an independent inspection/supervision mechanism.

Originality/value

The paper systematically analyzes the evaluation method of the lowest price winning bidding policy, which is the fundamental cause of adverse selection and moral hazard problems in the Chinese construction market.

Citation

Liu, D., Xu, W., Li, H., Zhang, W. and Wang, W. (2011), "Moral hazard and adverse selection in Chinese construction tender market: A case of Wenchuan earthquake", Disaster Prevention and Management, Vol. 20 No. 4, pp. 363-377. https://doi.org/10.1108/09653561111161699