Tournament Incentive Mechanisms Design for Long-Distance Water Diversion Projects Incorporating Preference Heterogeneity

Abstract

The owner often entrusts multiple contractors to construct in parallel due to the linear distribution of a long-distance water diversion project (LDWDP). However, multiple contractors with more information are more likely to engage in opportunistic behaviors harming the project and the public interest. The tournament incentive mechanism is considered to be one of the most effective measures to solve this issue. There are few studies on tournament incentive in construction project management, and the heterogeneous characteristics of psychological preference and the differences in tournament form are ignored. Therefore, to bridge these gaps, the tournament theory is introduced in this study to design multicontractor incentive mechanisms considering fairness preferences and self-interest preferences in a LDWDP contract. The primary contributions of this study are (1) to develop multicontractor tournament incentive models considering the preference heterogeneity based on the Lazear-Sherwin (LR) tournament incentive model and the Fehr–Schmidt fairness preference model, thus remedying the lack of a multicontractor incentive mechanism in the construction project field; (2) to explore the impact of tournament grouping arrangement on the incentive structure and incentive effect under three scenarios to help the owners improve practical guidance for formulating an incentive mechanism; and (3) to design the incentive intensity associated with each contractor’s relative ranking and absolute output performance to provide a theoretical basis for the transaction governance of large projects involving multiple contractors. This study not only improves the optimal incentive contract for LDWDP theoretically but also enriches and promotes the development of behavioral contract theory in various fields.