Platform Precommitment via Decentralization
IMF Working Papers, February 9, 2024
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- Platform Precommitment via Decentralization
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Bibliographic details
- Authors: Marco Reuter
- Published: February 9, 2024
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400267284.001
Summary
- The paper studies an entrepreneur’s incentives to build a decentralized platform using a blockchain versus building the platform using a regular company and retaining control.
- In both implementations, the platform’s users experience a locked-in effect.
- Main theoretical result: a decentralized implementation is both (i) more profitable for the entrepreneur and (ii) a Pareto improvement, if and only if the size of the locked-in effect exceeds some threshold.
- The paper also finds that progressive decentralization through airdrops can be optimal.
Key Findings and Results
- Entrepreneur’s strategic choice: retain control via a regular company OR surrender control via blockchain-based decentralization.
- Locked-in effect: present under either implementation and critical to comparative outcomes.
- Comparative criterion:
- Decentralized implementation is more profitable for the entrepreneur and a Pareto improvement if and only if the locked-in effect exceeds a threshold.
- Mechanism design insight:
- Progressive decentralization (e.g., via airdrops) can be an optimal strategy.
Subjects and Keywords
- Subject: Blockchain and DLT, Labor, Revenue sharing, Self-employment, Taxes, Technology
- Keywords: blockchain, Blockchain and DLT, commitment, cryptocurrency, decentralization, decentralized governance, decentralized platform, entrepreneur keep, entrepreneur's incentive, platform's user, platforms, Revenue sharing, Self-employment, smart contracts
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- Working Paper