Research On Compensation Problem In The Professional Liability Insurance For The Supervising Engineer Based On The Principal-Agent Theory

Construction industry is the main industry in national economy. In order to further realize the development of construction industry, China had implemented the construction supervision since 1996. In order to further develop the construction supervision and transfer supervising engineers'great risk, China introduced the professional liability insurance (PLI) for supervising engineers in 2002. High risk of PLI would lead to the increase of insurance compensation. Also, due to information asymmetry in the PLI, there is a need to introduce principal-agent theory into this field, which is to strengthen the study on the PLI for supervising engineers based on principal-agent theory. Therefore, in order to achieve the long term development of PLI for supervising engineers, provide better service to the development of construction supervision, and avoid the PLI crisis in foreign countries, this paper would strengthen the research on compensation problem in the PLI for supervising engineers based on the principal-agent theory.Based on the principal-agent theory, before signing insurance contract, there is adverse selection problem. After signing insurance contract, there is moral hazard problem. Essentially, the scientific solution of adverse selection and moral hazard problem relies on the design of incentive mechanism, which is how to incentive supervising engineers and decrease compensation. Therefore, in terms of the scientific design of this incentive mechanism, this paper would mainly probe the following problems: 1.before signing contract, aiming at adverse selection of PLI for supervising engineers, how the insurance company avoids risk and controls compensation; 2.after signing contract, aiming at moral hazard of PLI for supervising engineers, how the insurance company defines the compensation scope; 3.how the insurance company designs the incentive mechanism for supervising engineers to decrease the compensation; 4.seeking the reasonable explanation of research results.The main innovative work of the dissertation includes: 1.In terms of the information asymmetry before signing PLI contract, this paper studies the risk-averse and risk-seeking supervising engineers respectively in the adverse selection model, and revises the unfully insuring condition based on the compensation of the insurance company. On this foundation, the risk-averse mechanism of the adverse selection for the insurance company is established. It is found that this mechanism would provide incentive and restriction to the supervising engineer, help decrease risk, and contain the harm of the bilateral information asymmetry to supervising engineers and insurance company.2.In terms of the information asymmetry after signing PLI contract, using state-space formulation, this paper establishes moral hazard model with hidden action based on the compensation of the insurance company. On this foundation, this paper improves the moral hazard model with hidden action, establishes moral hazard model involved by three parties (including supervising engineers, insurance company and project owners), and defines the compensation scope of the insurance company in the case of the existence of the project owners. It is found that, due to the owners'existence, the supervising engineers'effort level would further decrease, and the compensation of the insurance company would also further decrease.3.In terms of the information asymmetry before and after signing PLI contract, in order to control compensation, aiming at supervising engineers, this paper designs the incentive mechanism for the insurance company based on the game theory. It is found that, through the key elements in the incentive mechanism, this paper provides suggestion to the insurance company for better operating PLI and makes up the shortcoming of the PLI study.