ABSTRACT
Blockchain permits immutable and total record-keeping in smart contracts. This can generate an economic surplus for all parties in our model of moral hazard where a longlived agent provides a service to a sequence of short-lived customers. Under traditional contracting, the agent treats all customers independently with a single static contract. The blockchain, by supporting history dependence across the agent’s relationships with individual customers, enforces dynamic and more efficient incentives and risk-sharing. Further, contracting on the blockchain can be essential to whether the agent’s business is viable, especially when the customer market is sufficiently large or tight.
Weng, Cheng and Yang, Youzhi, The Blockchain Surplus (July 1, 2023).
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