Can Blockchain Technology Help Overcome Contractual Incompleteness? Evidence from State Laws

Mark A. Chen (), Shuting Sophia Hu (), Joanna Wang () and Qinxi Wu ()
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Mark A. Chen: J. Mack Robinson College of Business, Georgia State University, Atlanta, Georgia 30303
Shuting Sophia Hu: Hankamer School of Business, Baylor University, Waco, Texas 76706
Joanna Wang: HSBC Business School, Peking University, Shenzhen 518055, China
Qinxi Wu: Hankamer School of Business, Baylor University, Waco, Texas 76706

Management Science, 2023, vol. 69, issue 11, 6540-6567

Abstract: Real-world contractual agreements between firms are often incomplete, leading to suboptimal investment and loss of value in supply chain relationships. To what extent can blockchain technology help alleviate problems arising from contractual incompleteness? We examine this issue by exploiting a quasi-natural experiment based on the staggered adoption of U.S. state laws that increased firms’ in-state ability to develop, adopt, and use blockchain technology. We find that, after exposure to a pro-blockchain law, firms with greater asset specificity exhibit more positive changes to Tobin’s Q , research and development, and blockchain-related innovation. Also, such firms appear to rely less on vertical integration, form more strategic alliances, and shift their emphasis to less geographically proximate customers. Overall, our results suggest that blockchain technology can help firms remedy constraints and inefficiencies arising from contractual incompleteness.

Keywords: blockchain; smart contracts; incomplete contracts; holdup problem; corporate policy (search for similar items in EconPapers)
Date: 2023
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