## 经济代写|微观经济学代写Microeconomics代考|Construction Markets

2023年4月13日

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## 经济代写|微观经济学代写Microeconomics代考|Construction Markets

I have discussed that owners and contractors trade one-family houses for consumption and factories or offices as investments. To find out whether we are facing a market for consumptive goods or investment goods, we just need to look at the structure of construction spending. I introduced already the idea, that the difference between consumption and investment depends on the use of a building. Infrastructure projects are always investments. A onefamily home can be both. If a family builds a house for self-occupancy, then the use will be consumptive. If the same family builds a house to rent it to someone, then it is used as investment. Only residential buildings can be used as consumption goods.

Table 15.1 provides data on the importance of different subsectors of construction with the goal to distinguish between consumption and investment. The data are from the US Census Bureau for April 2021 (US Census Bureau 2022).

Consumptive use is only possible for single family homes and improvements (maximum $41 \%$ ). However, we have to deduct the homes put on the real estate market for sale. Builders are producing investment goods which families buy for consumptive purposes. In Germany the percentage of custom-designed and self-contracted homes is at $10 \%$ and this is most likely higher than in the US. Combining these figures, we find for this group for new-built and improvements a percentage of $4.1 \%$ of total construction $(26 \% \times 0.1+15 \% \times 0.1)$. In sum, the overwhelming amount of construction spending is an investment.

The investor is nothing but the producer of residential, nonresidential, and public construction. Accordingly, the owner is the producer who works with contractors to achieve his goals. The very important takeaway here is that we are looking at a factor market. On factor markets, producers buy inputs to achieve their own productive goals of providing goods or services.

If we go back to the market definition by Debreu and Arrow (Tirole 2000), then we find that locality, time, and the product determine the market. Typical are regional markets with regard to location but it is also possible that a construction good is traded on a global market. Locality puts few limits on the market. Time constraints the market much stronger: A one-family standard home in Mumbai built in 2010 is traded in a different market then the same home in the same place two years later. The most important separation of the relevant market comes about by the individual design of a structure.

In the end, each individually designed structure creates a separate market. A bridge in Warsaw is no substitute for one in Reykjavik. A chip factory built in 2020 is no substitute for a factory built in 2019. A one-family home with three bedrooms and two baths in South Bend, Indiana, under construction in 2022 is no substitute for a one-family home with two bedrooms and one bath built at the same time in the same place.

Each construction project with a minimum of singularity creates its own market, whether it is used for consumption or investment.

## 经济代写|微观经济学代写Microeconomics代考|Construction Contracts

I have stressed repeatedly that time plays an important role in construction. Elsner et al. (2015, p. 14) provide the following statement: “Behaviors and institutions are especially important when exchanges are concerned that are not executed simultaneously, but where some agents have to get active first, and have to rely on others to follow suit and honor commitments they may have entered into in order for long-term projects to become viable… Reciprocity and trust become necessary ingredients in order to bridge over time. The necessity to put trust into the interaction partners is most relevant as written contracts are necessarily incomplete.” Construction contracts are prime examples of incomplete contracts. However, before I turn to the theory of incomplete contracts, I wish to provide a general overview.

Property rights define the degree to which an individual has control over an object. This can be absolute or restricted. Property rights to land are, for example, restricted by zoning laws. Economists call the actual property rights residual control rights. We trade such residual control rights in markets. Each market transaction has accordingly a physical and a legal aspect (Kolmar 2017). Contract goods rely in addition on an exchange of promises at the beginning of the transaction and the physical exchange becomes possible only at the end, months or years later. Contracts detail the applicable rules for a specific transaction, and contract laws the rules governing the contracts.

For Adam Smith and his idea of capitalism, the freedom of contract was of absolute importance. This is no longer the case to the same degree today. Contracts are regulated by contract law, which applies to a lesser degree to private than to public owners. Public owners in many countries have to follow tendering laws that do not apply to private ones. Tendering laws have two objectives: (i) The tendering process shall be transparent to eliminate corruption. (ii) The tendering process should be fair to both parties. Public owners are at least in some countries not allowed to negotiate the contract price after submission in order to avoid use of an information advantage on the side of the public owner. Tendering laws in the EU also have the objective to guarantee equal market access to construction firms from different EU countries. The World Bank goes one step further by mandating the use of FIDIC contracts. FIDIC (Fédération Internationale des Ingénieurs Conseils) is the International Federation of Consulting Engineers and it publishes different types of standard contracts. Private owners enjoy a much larger degree of contractual freedom and exert more market power. Table 15.1 provides the information that private construction investments (77\%) considerably exceed public investments (23\%) in the US in 2020.

# 微观经济学代考

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