Game Theory Based Research on Profit Distribution among Stakeholders in Urban Renewal Projects

Always encountered at the demolition stage in an urban renewal project are conflicts among the stakeholders including the government agency, the original residents and the real estate developer. In order to mediate their different interests, a reasonable demolition compensation system is undoubtedly of great importance. From the perspective of profit distribution game theory, the relationships among stakeholders in urban housing demolition compensation system are discussed, the static game model among three parties is constructed and the profit distribution mechanism based on reciprocating fairness is analyzed. Through the study of the paper, the cooperative equilibrium among the three parties is found and the criteria of profit distribution are put forward. Introduction The most difficult task in a renewal project is how to construct a reasonable compensation system during the demolition period. Besides the compensations to the original residents, the developer also pays for the ancillary facilities, such as municipal pipeline, which is usually enormous. For instance, in the Peace avenue of Beijing urban renewal, the cost of housing demolition accounted for 83% of the total investment; and in Shanghai Bin Jiang Garden Project developed by Shimao Group, the compensation cost was 2 billion RMB. It is revealed by certain statistics that in China the demolition compensation in an urban renewal project usually accounts for more than 50% of the total investment [1]. In order to balance the stakeholders’ expected profits so as to achieve a win-win game, a lot of researches have been carried out by both academicians and industrials. Liu Li and Zou Yi combine some exploitation cases to analyze the dilemma of urban renewal, and the successful solution to these problems is the most significant factor for the project’s success [1]. Zhu Dongkai and Shi Guoqing find the root causes of contradiction during the hosing demolition, through analyzing the interest relationship in land acquisition and demolition of urban construction [2]. Wang Da scholar finds some problems from searching enforcing behaviors during the housing demolition [3]. In recent years, many scholars just as Zhang Bo aim at the underlying problems and reasons in urban renewal to analyze the complex relationship among stakeholders based on Game theory[4]. Moreover, Yao Yan-hong scholar finds some countermeasures for the problems in housing demolision based on Game analysis [5]. Many practical facts teach us that the way of pursuing the profit maximization of our own cannot resolve the social and economic problems. Therefore, the game model of fair reciprocity has an important application prospect. Rabin firstly successful add the concept of fair in the Game theory and economics. The fairness equilibrium fully explains the motivation of fair reciprocity under the strategic reciprocal environment. The thinking venation of Rabin is similar to that of Kahneman’s behavioral economics [6]. Sun Shi-zhe extends several important game models of fair reciprocity based on the studies of predecessors [7]. In addition, Guo Bin and Dong Mingming construct the dynamic game model among three parties and construct the profit distribution model in urban renewal based on the Sharply value method [8]. 2nd International Conference on Management Science and Industrial Engineering (MSIE 2013) © 2013. The authors Published by Atlantis Press 479 The Relationship among Stakeholders As the acceleration of our country’s economic growth, the main stakeholders of urban renewal gradually separate to three cliques, including the government, developer, and residents. They are linked together by all kinds of problems produced during the process of urban renewal and their profits are associated but contradictory [2].Their relationship is showed in figure 1. Fig.1 The relationship among stakeholders The profit game between developer and residents The developer and residents represent their own profit during the process of housing demolition in urban renewal, so they contest with each other in profit game to expect their own profit increase. Only two opinions are hypothesized between developer and residents about the compensation measures: agreement or disagreement. It supposes that the profits which the residents gained are A, and the developer gained are B. According to the provision, the developer should pay compensation for residents, marked as a, so the profits of residents now are A+a, and those of developer are B-a. However, if residents agree with this plan while developer disagrees that, due to the assignment of urban renewal still need to complete, their profits are still A and B. The third situation is that if developer agrees with this plan while residents disagree with that. The residents hope to add more compensation based on A+a, marked as b. So the profits of residents are A+a+b while that of developer are B-a-b. The last situation which is the worst is that the two parties all disagree with compensation measure, so that they must via the law to solve the problem. Therefore, two parties should pay for the cost caused by court, marked as c. Moreover, the developer postpones the construction progress, so that it may engenders more cost, marked as d. The profits of residents become A-c, and those of developer are B-c-d which are greater than a+b when developer compromise to the plan .The profits is showed in table 1. Table 1 Profit matrix between developer and residents According to analyze the profit matrix, the agreement of developer can lead to higher profits for residents, so that the longer the time the residents drag on, the higher the profits they gained. As a result, people who known this knack may become what we called nail household. Moreover, the agreement of residents can make developer slash the compensations so that gain the higher profits. The developer hopes complete the housing demolition as soon as possible to conduct the subsequent projects, so that they may use the violent means for demolishing [5]. The two parties should avoid the situation that both of them are disagree with the plan, since this situation can cause both of them lose. Government Developer Residents Urban renewal Relocation Supervision、Management