The Influence of Project Owner on Professional Liability Insurance for Supervising Engineer

Abstract

In the principal-agency problem of the professional liability insurance (PLI) for supervising engineer, because supervising engineer is hired by the project owner, both project owner and insurance company are the principals of supervising engineer. Therefore, there is a need to study this kind of principal-agency structure and the influence of project owner on PLI for supervising engineer. We used the common hypothesis in principal-agency theory for reference to establish model structure. The conclusion is that, due to the influence of project owner, the compensation of insurance company under the existence of project owner should be less than the compensation under the absence of project owner. Also, because project owner cannot force supervising engineer to select effort level, the effort level of supervising engineer would further decrease.