CONSTRUCTION MICROECONOMICS Unique and comprehensive reference describing microeconomic approaches, theories, and models adapted to and developed for the construction industry
Construction Microeconomics provides comprehensive coverage of microeconomics applied to the construction industry, focusing on construction clients, who initiate construction projects, and on contractors who transform the ideas and plans of clients into infrastructure and buildings. With the help of microeconomic theory, it tries to answer questions about decision-making by clients, contractors, and governments with respect to projects in the built environment. It includes discussions of alternative theories to mainstream microeconomics, such as new institutional economics, behavioral economics, and the capability approach. Applications from the construction sector including land supply, sustainability, industrialization, and lean construction are provided to ground the theory in practical construction.
In Construction Microeconomics, readers will learn:
How microeconomic theory relies heavily on assumptions for modeling and the nuances of adjusting those assumptions
How heterogenous contract goods affect supply and demand, markets, information, technology, and accordingly, the theories of contractors and owners
How interaction influences the production process and how land as a production factor changes the production function
How ex-ante costs determine the cost theory of the contractor and why contracting is more akin to the service sector than the goods sector
Advanced undergraduate and masters students, lecturers and academics in construction and related disciplines, and professionals in the construction industry looking for expert analysis into a unique facet of the field will find Construction Microeconomics to be a valuable, complete, and authoritative reference on the subject.
By:
Christian Brockmann (University of Utah USA; TU Freiberg Germany)
Imprint: Wiley-Blackwell
Country of Publication: United Kingdom
Dimensions:
Height: 244mm,
Width: 170mm,
Spine: 28mm
Weight: 851g
ISBN: 9781119828785
ISBN 10: 1119828783
Pages: 416
Publication Date: 16 February 2023
Audience:
College/higher education
,
Primary
Format: Hardback
Publisher's Status: Active
Foreword by Gerard de Valence xix Preface xxi References xxvi 1 Introduction 1 1.1 Navigating the Maze of Economic Literature 2 1.1.1 Economics 2 1.1.2 Microeconomics 3 1.1.3 Macroeconomics 4 1.1.4 Construction Economics 4 1.2 Tools and Presentations 5 1.2.1 Definitions 5 1.2.2 Economic Scholars 6 1.2.3 Assumptions 6 1.2.4 Case Studies 6 1.2.5 Observations 7 1.2.6 Summaries 7 1.3 Methodological Approach 8 1.3.1 Laws and Regularities 8 1.3.2 Focus and Goals 11 1.3.3 Descriptive and Normative Economics 12 1.4 Theoretical Background 13 1.4.1 Industrial Economics 13 1.4.2 New Institutional Economics 14 1.4.3 Game Theory 15 1.4.4 Auction Theory 16 1.4.5 Behavioral Economics 16 1.4.6 Economics of Information 17 1.4.7 Law and Economics 17 1.5 What You Can and Cannot Expect 17 1.6 Audience 19 1.6.1 Students 19 1.6.2 Lecturers 19 1.6.3 Academics 19 1.6.4 Contractors 19 1.6.5 Owners 20 1.6.6 Policymakers 20 1.7 Structure of the Text 20 1.7.1 Basic Economic Principles 20 1.7.2 Consumers in Perfectly Competitive Markets 21 1.7.3 Producers in Perfectly Competitive Markets 21 1.7.4 Interaction in Perfectly Competitive Markets 21 1.7.5 Imperfect Markets 22 1.7.6 Factor Markets 22 1.7.7 Information, Risk, and Uncertainty 22 1.7.8 Game Theory and Auctions 23 1.7.9 Construction Sector 23 1.7.10 Theory of the Owner 23 1.7.11 Theory of the Contractor 24 1.7.12 Construction Goods 24 1.7.13 Construction Markets 24 1.7.14 Contracting 25 1.7.15 Market Imperfections 25 1.7.16 Government 25 1.7.17 Public Construction Goods 26 1.7.18 Conclusion 26 1.7.19 Synopsis 26 References 27 Part I Microeconomics 31 2 Basic Economic Principles 33 2.1 Consensual Ideas 35 2.2 Scarcity and Choice 36 2.3 Decision-Making 39 2.3.1 Opportunity Costs 39 2.3.2 Incentives 40 2.3.3 Marginal Decisions 41 2.4 Markets 41 2.5 Trade and Comparative Advantage 44 2.6 Government 47 References 48 3 Consumers in Perfectly Competitive Markets 51 3.1 Perfectly Competitive Markets 53 3.2 Consumer Behavior 55 3.2.1 Budget Constraint 55 3.2.2 Preferences and Utility Functions 56 3.2.3 Utility Maximization 60 3.3 Demand Curve 62 3.4 Further Reading 64 References 65 4 Producers in Perfectly Competitive Markets 67 4.1 Producer Behavior 68 4.2 Production Theory 70 4.2.1 Technology 71 4.2.2 Production Functions 75 4.2.2.1 Classical Production Function 77 4.2.2.2 Neoclassical Production Function 79 4.2.2.3 Limitational Production Function 82 4.2.2.4 Technological Change (Innovation) and Learning 83 4.3 Cost Theory 85 4.3.1 Cost Curves for Classical Production Functions 86 4.3.2 Cost Curves for Neoclassical Production Functions 88 4.3.3 Cost Curves for Limitational Production Functions 89 4.3.4 Simplified Cost Function with Constantly Increasing Variable Costs 89 4.3.5 Long-Run Cost Curves 91 4.4 Supply Curve 92 4.4.1 Short-Run Supply Curve of a Firm 92 4.4.2 Long-Run Supply Curve of a Firm 94 4.4.3 Market Supply Curve 94 References 95 5 Interaction in Perfectly Competitive Markets 97 5.1 Equilibrium Price and Quantity 99 5.2 Comparative Statics 101 5.3 Elasticities of Demand and Supply 102 5.4 Consumer and Producer Surplus 106 5.5 Time-Dependent Supply Curves and Market Outcomes 107 5.5.1 Very-Short-Run Supply Curve 108 5.5.2 Short-Run Supply Curve 108 5.5.3 Long-Run Supply Curve 109 5.6 Welfare 110 5.7 Efficiency and Equity 112 References 113 6 Imperfect Markets 115 6.1 Monopoly 117 6.1.1 Normal Monopolies 118 6.1.2 Natural Monopolies 120 6.2 Monopolistic Competition 121 6.3 Monopsony 124 6.4 Oligopoly 125 References 126 7 Factor Markets 129 7.1 Factor Supply of Households 131 7.1.1 Labor Supply 131 7.1.2 Capital Supply 133 7.2 Factor Demand of Firms 135 7.3 Demand and Supply on Factor Markets 137 References 137 8 Uncertainty, Risk, and Information 139 8.1 Uncertainty and Risk 140 8.1.1 Risk Attitudes 141 8.1.2 Risk Strategies 142 8.1.3 Transaction Cost Theory 144 8.2 Information 146 8.2.1 Satisficing Model of Decision-Making 146 8.2.2 Asymmetric Information 149 8.2.2.1 Principal–Agent Theory 149 8.2.2.2 Market Breakdown Due to Asymmetric Information 149 8.2.2.3 Hidden Characteristics and Adverse Selection 150 8.2.2.4 Hidden Intentions and Holdup 151 8.2.2.5 Hidden Action and Moral Hazard 152 8.2.3 Property Rights Theory 153 References 153 9 Game Theory and Auctions 155 9.1 Game Theory 156 9.1.1 Basics of Game Theory 157 9.1.2 Static Games with Complete Information 159 9.1.3 Dynamic Games with Complete Information 160 9.2 Auctions 161 9.2.1 Basics of Auctions 161 9.2.2 English and Vickrey Auctions 163 9.2.3 Dutch Auctions and Sealed-Bid Auctions 164 9.2.4 Competitive Bidding 164 References 167 Part II Applied Construction Microeconomics 169 10 Construction Sector 171 10.1 Definition 172 10.2 Economic Contribution 174 10.2.1 Value-Added Concept 174 10.2.2 Investment Concept 176 10.2.3 Multiplier Concept 177 10.3 Actors in the Construction Sector 179 10.3.1 Market Demand 181 10.3.2 Market Supply 183 10.4 Summary of the Construction Sector 185 References 186 11 Theory of the Owner 189 11.1 The Owner as an Entity 190 11.1.1 Terminology 190 11.1.2 Images and Prejudices 191 11.1.3 Organization 192 11.2 Tasks of the Owner 194 11.3 Behavior of the Owner 195 11.3.1 Consumers Buying Construction Goods 195 11.3.2 Producers Buying Construction Goods 196 11.4 Information of the Owner 197 11.5 Developing a Contract 198 11.6 Procurement of a Contractor 199 11.7 Supervision of the Construction Process 202 11.8 Summary 203 References 203 12 Theory of the Contractor 205 12.1 The Contractor as an Entity 205 12.1.1 Cooperation 206 12.1.2 Organization 207 12.2 Tasks of the Contractor 208 12.3 Behavior of the Contractor 209 12.3.1 Strategy 211 12.3.2 Legal Organization 212 12.3.3 Growth of the Firm 214 12.4 Information of the Contractor 215 12.5 Bidding 216 12.6 Contractor Pricing 217 12.7 Production 220 12.7.1 General Characteristics 220 12.7.2 Production Determinants 222 12.7.2.1 Production Line, Work Shop, Site Construction, Parallel, or Variable Production 222 12.7.2.2 Automatization 224 12.7.2.3 Mass or Single-Item Production 225 12.7.2.4 Continuous and Discontinuous Production 225 12.7.2.5 Summary of Production Types 226 12.7.3 Production Functions and Cost Curves 228 12.7.4 Production Decisions 233 12.8 Summary 234 References 234 13 Construction Goods 237 13.1 Goods and Services 237 13.1.1 Heterogeneity 238 13.1.2 Construction Goods as Transitional Performance Bundles 240 13.1.3 Construction Goods as Contract Goods 242 13.1.4 Construction Goods as Investment 244 13.1.5 Construction Goods as Services 244 13.1.6 Summary of the Characteristics of Construction Goods 246 13.2 Typology of Construction Goods 247 13.2.1 Approach to Developing a Typology 248 13.2.2 Conceptualization 248 13.2.2.1 Choice of Dimensions 249 13.2.2.2 Typical Cases 250 13.2.2.3 Typology 250 13.2.3 Applications 253 13.2.3.1 Market Entry 253 13.2.3.2 Optimum Firm Size 253 13.2.3.3 Strategic Planning 255 13.3 Summary 256 References 256 14 Construction Markets 259 14.1 Characteristics of Markets 259 14.2 Particularities of Construction Markets 261 14.2.1 Goods 261 14.2.2 Owners 262 14.2.3 Markets 262 14.2.4 Summary 263 14.3 Analysis of Construction Markets 263 14.3.1 Heterogeneity 265 14.3.1.1 Observation 266 14.3.1.2 Theory 266 14.3.1.3 Organization 266 14.3.1.4 Structure 266 14.3.1.5 Specialization 267 14.3.1.6 Law 267 14.4 Owners 268 14.5 Contractors 268 14.5.1 Supply 268 14.5.2 Information 269 14.6 Geography of Construction Markets 270 14.6.1 Regional Markets 271 14.6.2 National Markets 274 14.6.3 International Markets 279 14.6.4 Multinational Markets 280 14.6.5 Global Players and Global Markets 283 14.7 Entry and Exit Barriers 285 14.7.1 Effects of the Business Cycle 286 14.7.2 Number of Exits and Entries 290 14.8 Summary 292 References 293 15 Contracting 297 15.1 Construction Goods 298 15.2 Construction Markets 300 15.3 Owner’s Demand 301 15.4 Contractor’s Supply 302 15.5 Construction Contracts 303 15.6 Contracting Market Design 305 15.7 Pricing of Construction Contracts 307 15.7.1 Marginal Cost Decisions Versus Markup Pricing 308 15.7.2 Auctioning 310 15.7.2.1 Construction Goods and Auctions 310 15.7.2.2 Auction Designs 312 15.7.3 Sealed-Bid Auctions 315 15.7.3.1 Pricing in Sealed-Bid Auctions 316 15.7.3.2 Pricing bias 316 15.7.3.3 Information Bias 317 15.7.3.4 Uncertainty Bias 318 15.7.3.5 Technology Advance 319 15.8 Supply and Demand in Construction 319 15.9 The Owner as Monopsonist 320 15.10 Bargaining for the Contract Price 322 15.11 Change Orders and Claims 325 15.12 Summary 326 References 327 16 Market Imperfections 329 16.1 Imperfect Information 329 16.2 Externalities 331 16.3 Collusion and Corruption 334 16.3.1 Collusion 334 16.3.1.1 Naturally Caused Collusion 336 16.3.1.2 Artificially Caused Collusion 337 16.3.2 Corruption 338 16.4 Mechanics or Ethics of Collusion 340 16.5 Conclusion 341 References 342 17 Government 343 17.1 Government as Actor on Markets 344 17.2 Taxes and Subsidies 346 17.3 Regulations 348 17.4 Interest Rates 350 17.5 Inflation 353 References 354 18 Public Goods 355 18.1 Characteristics of Private Goods 356 18.1.1 Rivalry 357 18.1.2 Excludability 358 18.2 Theory of Public Goods 359 18.2.1 Demand of a Public Good Based on Utility 360 18.2.2 Demand for a Public Good Based on Willingness to Pay 361 18.3 Free Riding 362 18.4 Cost–Benefit Analysis 363 18.5 Construction Goods as Public Goods 363 18.6 Strategic Misrepresentation and Optimism Bias 364 References 365 19 Conclusion 367 19.1 Methodical Context 367 19.2 Owners 369 19.3 Contractors 370 19.4 Construction Goods 371 19.5 Construction Markets 371 19.6 Contracting 373 References 374 Index 375
Christian Brockmann is Professor (Lecturer) of Construction Engineering at the University of Utah, USA. He holds a PhD in construction management from ETH Zurich (Switzerland) and a PhD in Economics from TU Freiberg (Germany). With over 20 years’ experience in the management of major infrastructure projects as a contractor and consultant, Christian was Project Director for the BangNa Expressway in Thailand and the Port Said Tunnels in Egypt, (both $2b+ projects), and was part of the Owner’s Project Management Team for the Qatar Integrated Railway Project (a $40b+ project).
