2005 Volume 12 Pages 159-170
Joint venture contracts for construction works are classified in two types; integrated JV and segregated JV. These two types of JV contracting have different structures regarding to profit, cost and risk sharing. In this paper, two models are proposed to analyze the impact of each type of contracting structure on the JV members' incentives regarding unverifiable investment (e.g. talented project manager and so on). Conclusively, under the integrated JV, if a sponsor company leading the whole activities undertaken by the JV exists, the economic efficiency is achieved. However, without a sponsor company, the integrated JV leads to inefficiency of works due tomoral hazard. Moreover, we show that segregated JV can lead to inefficiency due to moral hazard, if each company's liability for EOT (Extension of Time) is not well defined. We also analyze the effect of the liquidated damage rule for EOT (Extension of Time) on the economic efficiency of the JV project.