 Extending Amartya Sen’s Paretian Liberal Paradox to a Firm’s HierarchyNo 2023/3, DEM Working Papers from Department of Economics and Management Abstract: Smart contracts (i.e., agreements enforced by a blockchain) are supposed to work at lower transaction costs than traditional (and incomplete) contracts that instead exploit a costly legal enforcement. This paper challenges that claim. I argue that because of the need for adaptation to mutable and unpredictable occurrences (a chief challenge of transaction cost economics à la Oliver Williamson), smart contracts may incur higher transaction costs than traditional contracts. This paper focuses on two problems related to the adaptation: first, smart contracts are constructed to limit and potentially avoid any ex-post legal intervention, including efficiency-enhancing adaptation by courts. Second, the consensus mechanism on which every smart contract depends may lead to additional transaction costs due to a majority-driven adaptation of the blockchain that follows Mancur Olson’s Logic of groups. The paper further proposes several institutional expedients that may reduce these transaction costs of smart contracts. Keywords: Paretian liberal paradox; Amartya Sen; A firm’s hierarchy; Transaction costs; Code of business conduct (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:trn:utwprg:2023/3 Access Statistics for this paper More papers in DEM Working Papers from Department of Economics and Management Contact information at EDIRC. |
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