Sharing Risk Contingency Costs in Construction Joint Venture Agreements: A Cooperative Game Theory Approach
Publication: Construction Research Congress 2022
ABSTRACT
Construction joint ventures (CJVs) are often perceived as risky endeavors due to the differences in technical, cultural, and political backgrounds between the participating parties. Fair apportionment of risk costs is considered as one of the critical success factors of a CJV. This research aims to allocate CJV risk-contingency costs based on the formation risks attributed to each party. To this end, the authors developed a parametric framework that allocates potential CJV additional risk-contingency costs among parties via cooperative game theory (CGT). First, CJV formation risks are identified and assessed using an existing model from the literature that utilizes analytical hierarchy process and utility theory. Next, estimates for contingency costs required for risk mitigation are divided among partners using CGT. To demonstrate the proposed framework, an illustrative case study is presented. Results of the study highlight the utility of CGT in generating axiomatically fair shares of risk contingency costs that ultimately enhance the stability of the CJV.
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Construction Research Congress 2022
Pages: 20 - 29
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Published online: Mar 7, 2022
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