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Incentive structures in multi-partner project teams

Jiaojie Han (School of Finance, Zhongnan University of Economics and Law, Wuhan, China)
Amnon Rapoport (Eller College of Management, The University of Arizona, Tucson, Arizona, USA)
Patrick S.W. Fong (Department of Building and Real Estate, Hong Kong Polytechnic University, Kowloon, Hong Kong)

Engineering, Construction and Architectural Management

ISSN: 0969-9988

Article publication date: 22 July 2019

Abstract

Purpose

The purpose of this paper is to investigate the impact of incentive contracts in multi-partner project teams (MPPTs) on the agents’ effort expenditure and project performance, analyze how the agents allocate their efforts between production and cooperation and offer suggestions for project managers on how to design incentive contracts.

Design/methodology/approach

The paper proposes a model of MPPT in which agents are inequity-averse and their effort expenditures are exogenously bounded. An extensive numerical example is presented in online Appendix 2 to illustrate the theoretical results.

Findings

The paper suggests that if the potential benefit of the agents’ cooperation in MPPT is high or if both agents exhibit inequity aversion and the efforts’ marginal costs are low, then group-based incentive contracts outperform individual-based incentive contracts. It also shows that the impact of the incentive contract on the agents’ effort expenditure and project team performance is correlated with several critical project attributes.

Originality/value

Fulfilling a need to study the design of incentive structures in MPPTs, the paper complements the existing literature in three ways. First, in contrast to single-partner project teams, it considers projects with multiple partners where cooperation between them enhances the project outcome. Second, rather than focusing on individual production problems, it considers multi-task projects with constrained efforts that must be allocated between production and cooperation. Third, it analyzes the effects of changes in the project attributes, incentive intensities and information transparency on the effectiveness of the contract.

Keywords

Acknowledgements

Jiaojie Han gratefully acknowledges the support of this project by the National Natural Science Foundation of China (Grant Nos 71872180, 71402191) and the Fundamental Research Funds for the Central Universities. The authors thank the anonymous reviewers for their constructive comments.

Citation

Han, J., Rapoport, A. and Fong, P.S.W. (2019), "Incentive structures in multi-partner project teams", Engineering, Construction and Architectural Management, Vol. 27 No. 1, pp. 49-65. https://doi.org/10.1108/ECAM-09-2018-0410

Publisher

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Emerald Publishing Limited

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