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Default Behaviors of Contractors under Surety Bond in Construction Industry Based on Evolutionary Game Model

Author

Listed:
  • Jiabao Jing

    (Department of Construction Management, Tsinghua University, Beijing 100084, China)

  • Xiaomei Deng

    (Department of Construction Management, Tsinghua University, Beijing 100084, China)

  • Rashid Maqbool

    (Department of Construction Management, Tsinghua University, Beijing 100084, China)

  • Yahya Rashid

    (Department of Mechanical Engineering, Prince Sattam Bin Abdulaziz University, Al-Kharj 16273, Saudi Arabia)

  • Saleha Ashfaq

    (School of Economics and Management, Fuzhou University, Fujian 350108, China)

Abstract

In construction projects, some contractors will take default actions against the contracts to obtain maximum profits and damage the owners’ benefits as a result. In the construction markets where effective supervision is not performed well, contractors have more opportunities to default. Surety bonds were designed to solve the default problems and promote the sustainable development of the construction markets. This paper was proposed to explore the interactions between owners and contractors and investigate the influence of surety bonds (high penalty and low penalty) on the default behavior of contractors based on a static and dynamic evolutionary game analysis model. The results showed that applying the surety bond strategy is effective at decreasing the probability of the contractors’ default behavior when the credit system based on a surety bond system is well developed in the construction industry and the cost of the surety bond is low enough. Therefore, government strategies such as a better development of the credit system driven by surety bonds and the subsidies on surety bonds to reduce the cost can mitigate the contractors’ default behavior and keep the sustainability of the construction markets.

Suggested Citation

  • Jiabao Jing & Xiaomei Deng & Rashid Maqbool & Yahya Rashid & Saleha Ashfaq, 2020. "Default Behaviors of Contractors under Surety Bond in Construction Industry Based on Evolutionary Game Model," Sustainability, MDPI, vol. 12(21), pages 1-28, November.
    • Handle: RePEc:gam:jsusta:v:12:y:2020:i:21:p:9162-:d:439780
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    References listed on IDEAS

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    Cited by:

    1. Zhicheng Weng & Pinliang Luo, 2021. "Supervision of the Default Risk of Online Car-Hailing Platform from an Evolutionary Game Perspective," Sustainability, MDPI, vol. 13(2), pages 1-19, January.

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