Mechanism design and equilibrium analysis of smart contract mediated resource allocation

Jinho Cha, Justin Yoo, Eunchan Daniel Cha, Emily Yoo, Caedon Geoffrey and Hyoshin Song

Papers from arXiv.org

Abstract: Decentralized coordination and digital contracting are becoming critical in complex industrial ecosystems, yet existing approaches often rely on ad hoc heuristics or purely technical blockchain implementations without a rigorous economic foundation. This study develops a mechanism design framework for smart contract-based resource allocation that explicitly embeds efficiency and fairness in decentralized coordination. We establish the existence and uniqueness of contract equilibria, extending classical results in mechanism design, and introduce a decentralized price adjustment algorithm with provable convergence guarantees that can be implemented in real time. To evaluate performance, we combine extensive synthetic benchmarks with a proof-of-concept real-world dataset (MovieLens). The synthetic tests probe robustness under fee volatility, participation shocks, and dynamic demand, while the MovieLens case study illustrates how the mechanism can balance efficiency and fairness in realistic allocation environments. Results demonstrate that the proposed mechanism achieves substantial improvements in both efficiency and equity while remaining resilient to abrupt perturbations, confirming its stability beyond steady state analysis. The findings highlight broad managerial and policy relevance for supply chains, logistics, energy markets, healthcare resource allocation, and public infrastructure, where transparent and auditable coordination is increasingly critical. By combining theoretical rigor with empirical validation, the study shows how digital contracts can serve not only as technical artifacts but also as institutional instruments for transparency, accountability, and resilience in high-stakes resource allocation.

Date: 2025-10
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