A Game Anaylysis on Stimulation for Project Manager in Real Estate Development

Abstract

Project managers are in charge of the process of real estate development and play a crucial part in success of the development. Some payment systems based on principalagent theory are adopted in stimulation for project managers in China, such as annuity system and stock option. They can stimulate the project manager for hard working and cut down the developer's agency cost. By applying the game theory approach, this paper establishes a game model of stimulation for a project manager, provides the constraint of individual rationality and the constraint of incentive compatible. Moreover, it analyzed the effects of stimulation for the project manager and draws the conclusions that the cost of risk and total agency cost for the developer are both lower than the case that have no stimulation. Therefore it is essential for developers to stimulate project managers through a proper incentive mechanism. The mechanism is able to stimulate the project manager for hard working and cut down the developer's agency cost.