Platform Precommitment via Decentralization

Marco Reuter

No 2024/028, IMF Working Papers from International Monetary Fund

Abstract: I study an entrepreneur’s incentives to build a decentralized platform using a blockchain. The entrepreneur can either build the platform using a regular company and retain control of the platform, or build the platform using a blockchain and surrender control of the platform. In either case, the platform’s users experience a locked-in effect. I show that a decentralized implementation of the platform 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. Further, progressive decentralization through airdrops can be optimal.

Keywords: blockchain; smart contracts; decentralization; cryptocurrency; commitment; platforms; entrepreneur's incentive; decentralized platform; platform's user; entrepreneur keep; decentralized governance; Self-employment; Revenue sharing; Blockchain and DLT (search for similar items in EconPapers)
Pages: 48
Date: 2024-02-09
New Economics Papers: this item is included in nep-mic and nep-pay
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