Governing the moral hazard in China's sponge city projects: A managerial analysis of the construction in the non-public land

Abstract

As a new development mode for solving urban water control problems, a sponge city has been widely concerned and steadily promoted in China. The source engineering in the non-public land is called a low-impact development system. Although it is an important part of a sponge city, the effect of its construction and operation is not ideal at present. The main reason for this lies in the moral hazard behavior of the developer who is the responsible party and the agent. In this research, governance mechanisms for preventing the moral hazard behavior are put forward. Additionally, corresponding models are constructed and designed based on incentive theory and project governance theory. Furthermore, the existence constraint conditions of different governance mechanisms are obtained, as well as the optimal reward and punishment of the government. Meanwhile, this paper calculated the expected returns of the government and the developer. The result shows that project completion probability and supervision cost are two key factors affecting the choice of the governance mechanisms. According to different value of project completion probability and supervision cost, this paper evaluated the selection conditions of different governance mechanisms. Moreover, this research puts forward some governing tactics and suggestions for preventing the developer's moral hazard behavior, in order to improve the effect of project construction, and promote sponge cities to develop in a more efficient and sustainable manner.