Scandinavian Working Papers in Economics

Working Paper Series,
Royal Institute of Technology, Department of Real Estate and Construction Management & Centre for Banking and Finance (cefin)

No 15/10: Good and bad innovations in the housing sector - General background and a policy proposal

Lena Borg ()
Additional contact information
Lena Borg: Department of Real Estate and Construction Management, Royal Institute of Technology, Postal: Department of Real Estate and Construction Management , Royal Institute of Technology, Brinellvägen 1, 100 44 Stockholm, Sweden

Abstract: Purpose – The purpose is to propose a classification system for techniques to increase awareness of the uncertainties and risk connected to new techniques and materials, especially when the buyer is a non-professional client. The new classification system should increase information flow and decrease the problem occurring in principal-agent relationships in terms of moral hazard. The aim is also to shift the focus of the discussion from the quantity of innovations to how incentives can be created to further "good" innovations and to reduce the risk of "bad" innovations. The paper explores how housing firms in Sweden, municipal and private firms, are positioning themselves to implement new techniques and contracts in the construction sector. Design/methodology/approach – The paper combines a literature review with an on-line questionnaire in combination with three face-to-face semi-structured interviews. The key data were collected from actors that build for their own management. Findings – The paper reports two main findings. First, actors that build for their own management are risk-averse. Second, it seems that a classification system could be a good way to handle the uncertainties and risk connected to innovations in the housing construction sector. The study also underlines the need for an active public sector which takes responsibility for helping the sector to open up for more firms that will invest in the right kind of innovations. Originality/value – The paper is one of the few that focus on discussing the potential of shifting the focus from the quantity of innovations to how incentives can be created to further "good" innovations and to reduce the risk of "bad" innovations. Also, it proposes a two-step classification system for new technical innovation to achieve increased transparency and reduced information asymmetry in the construction sector.

Keywords: Innovations; Housing construction; Procurement; Incentives

JEL-codes: L74; O31; R33

18 pages, November 5, 2015

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