An empirical examination of moral hazards and adverse selection on PPP projects: A case study of Ghana

De-Graft Owusu-Manu (Department of Building Technology, KNUST, Kumasi, Ghana)
David John Edwards (School of Engineering and the Built Environment, Birmingham City University, Birmingham, UK)
A.S. Kukah (Kwame Nkrumah University of Science and Technology, Kumasi, Ghana)
Erika Anneli Parn (Faculty of Technology Engineering and the Built Environment, Birmingham City University, Birmingham, UK)
Hatem El-Gohary (Birmingham City University, Birmingham City Business School, Birmingham, UK and College of Business and Economics, Qatar University, Qatar)
M. Reza Hosseini (Deakin University Faculty of Science Engineering and Built Environment, Geelong, Australia)

Journal of Engineering, Design and Technology

ISSN: 1726-0531

Publication date: 4 December 2018

Abstract

Purpose

Failures of public–private partnership (PPP) projects are often ascribed to the agency problem, which arise under conditions of inadequate and asymmetric information when a principal (the client) hires an agent (the contractor). This paper aims to identify the causes and effects of moral hazard and adverse selection on PPP construction projects using a synthesis of extant literature (to determine key variables) and analysis of survey questionnaire data collected.

Design/methodology/approach

Mean score ranking was used to rank the causes and effects of moral hazard and adverse selection problems in PPP construction projects. One sample t-test was conducted to establish the relative significance of these variables.

Findings

Effort dimensions (which are not verifiable), low transfer of risk, lack of accurate information about project conditions, wrong party chosen to execute project and renegotiation of contracts were the most significant causes of moral hazard and adverse selection problems in PPP construction projects. In addition, reduction of competition, high transaction costs, consequences on profitability of project, siphoning of funds and negative implications on enforceability of contract were the most significant effects of moral hazard and adverse selection problems in PPP construction projects.

Practical implications

Application of these findings will help mitigating moral hazard and adverse selection problems occurring when undertaking PPP construction projects.

Originality/value

Research findings provide guidance to construction stakeholders in the PPP sector on the different causes and effects of adverse selection and moral hazard. This pioneering study is the first to conduct an empirical assessment of the causes and effects of moral hazard and adverse selection of PPP construction projects in a developing country.

Keywords

Citation

Owusu-Manu, D.-G., Edwards, D.J., Kukah, A.S., Parn, E.A., El-Gohary, H. and Hosseini, M.R. (2018), "An empirical examination of moral hazards and adverse selection on PPP projects: A case study of Ghana", Journal of Engineering, Design and Technology, Vol. 16 No. 6, pp. 910-924. https://doi.org/10.1108/JEDT-01-2018-0001

Publisher

:

Emerald Publishing Limited

Copyright © 2018, Emerald Publishing Limited

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