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Blockchain Disables Real-World Governance

Author

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  • Hitoshi Matsushima

    (University of Tokyo)

Abstract

This study indicates that the improper uses of a public blockchain disable real-world governance in organizations and marketplaces. By using any basic application of smart contracts, such as escrow transactions, along with a revelation mechanism outside the blockchain, individuals can execute illegal cartel acts in a self-enforcing and non-judicial manner. Cartel members can then implement collective deviations without help from trusted intermediaries or any requirements on reputation or word-of-honor. We show that a first price auction is vulnerable to cartel threats even if the seller can hide bidders’ prices because bidders take a countermeasure to hidden prices by using blockchain.

Suggested Citation

  • Hitoshi Matsushima, 2019. "Blockchain Disables Real-World Governance," CARF F-Series CARF-F-459, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    • Handle: RePEc:cfi:fseres:cf459
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    References listed on IDEAS

    as
    1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
    2. Eric Budish, 2018. "The Economic Limits of Bitcoin and the Blockchain," NBER Working Papers 24717, National Bureau of Economic Research, Inc.
    3. d'Aspremont, Claude & Gerard-Varet, Louis-Andre, 1979. "Incentives and incomplete information," Journal of Public Economics, Elsevier, vol. 11(1), pages 25-45, February.
    4. Roger B. Myerson, 1981. "Optimal Auction Design," Mathematics of Operations Research, INFORMS, vol. 6(1), pages 58-73, February.
    5. Legros, Patrick & Matsushima, Hitoshi, 1991. "Efficiency in partnerships," Journal of Economic Theory, Elsevier, vol. 55(2), pages 296-322, December.
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    Cited by:

    1. Hitoshi Matsushima, 2019. "Information Design in Blockchain: A Role of Trusted Intermediaries," KIER Working Papers 1018, Kyoto University, Institute of Economic Research.

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    More about this item

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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