Optimal gainshare/painshare in alliance projects

S M Hosseinian and D G Carmichael
Additional contact information
S M Hosseinian: The University of New South Wales, NSW, Australia
D G Carmichael: The University of New South Wales, NSW, Australia

Journal of the Operational Research Society, 2013, vol. 64, issue 8, 1269-1278

Abstract: Alliances are popularly used in delivering infrastructure. However, discussion is ongoing as to what is the optimal gainshare/painshare arrangement. This paper derives a result for the optimal gainshare/painshare between risk-averse parties, where the level of aversion may range from very large to being risk neutral. The derivation is based on solving an optimization problem using concepts from agency theory. The influence of the parties’ level of risk aversion and outcome uncertainty is examined. Practitioners were engaged in a designed exercise in order to validate the approach and propositions. The paper shows that: (i) the optimal gainshare/painshare arrangement in alliances is linear in the project outcome; (ii) the optimal gain/pain share to the contractor should decrease with increasing contractor level of risk aversion and/or decreasing owner level of risk aversion; and (iii) the outcome uncertainty has no influence on the optimal gainshare/painshare. The paper provides those who write alliance contracts with recommendations on gainshare/painshare. This study casts new light on establishing optimal alliance arrangements in the construction industry.

Date: 2013
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.palgrave-journals.com/jors/journal/v64/n8/pdf/jors2012146a.pdf Link to full text PDF (application/pdf)
http://www.palgrave-journals.com/jors/journal/v64/n8/full/jors2012146a.html Link to full text HTML (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:jorsoc:v:64:y:2013:i:8:p:1269-1278

Ordering information: This journal article can be ordered from
http://www.springer. ... search/journal/41274

Access Statistics for this article

Journal of the Operational Research Society is currently edited by Tom Archibald and Jonathan Crook

More articles in Journal of the Operational Research Society from Palgrave Macmillan, The OR Society
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().