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Centralization vs. Decentralization: First Evidence from the Laboratory

Author

Listed:
  • Gabriele Camera

    (Economic Science Institute, Chapman University, One University Dr., Orange, CA 92866)

  • Gary Charness

    (University of California, Santa Barbara, Department of Economics, North Hall 3032 , Santa Barbara, CA 93106)

  • Nir Chemaya

    (University of California, Santa Barbara, Department of Economics, North Hall 2049, Santa Barbara, CA 93106)

Abstract

We study trading networks where the apportioning of participants’ payments flows, or, validation, relies on one of two governance architectures: centralized, validation authority is concentrated in a single participant, or decentralized, authority is distributed among all participants. Both architectures support multiple Pareto-ranked equilibria, with and without failure to properly apportion payments. In the experiment, decentralization never promoted validation failures, and in fact discouraged them—boosting trading activity—when we introduced pre-play communication, a natural feature of a trading environment. This governance advantage shows that there is scope for decentralization in innovating monetary and financial networks.

Suggested Citation

  • Gabriele Camera & Gary Charness & Nir Chemaya, 2024. "Centralization vs. Decentralization: First Evidence from the Laboratory," Working Papers 24-07, NET Institute.
    • Handle: RePEc:net:wpaper:2407
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    More about this item

    Keywords

    communication; digital currencies; group decision-making; payments systems.;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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