Centralization vs. Decentralization: First Evidence from the Laboratory

Gabriele Camera (camera@chapman.edu), Gary Charness and Nir Chemaya (nir@ucsb.edu)
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Gabriele Camera: Economic Science Institute, Chapman University, One University Dr., Orange, CA 92866
Nir Chemaya: University of California, Santa Barbara, Department of Economics, North Hall 2049, Santa Barbara, CA 93106

No 24-07, Working Papers from NET Institute

Abstract: We study trading networks where the apportioning of participants’ payments flows, or, validation, relies on one of two governance architectures: centralized, validation authority is concentrated in a single participant, or decentralized, authority is distributed among all participants. Both architectures support multiple Pareto-ranked equilibria, with and without failure to properly apportion payments. In the experiment, decentralization never promoted validation failures, and in fact discouraged them—boosting trading activity—when we introduced pre-play communication, a natural feature of a trading environment. This governance advantage shows that there is scope for decentralization in innovating monetary and financial networks.

Keywords: communication; digital currencies; group decision-making; payments systems. (search for similar items in EconPapers)
JEL-codes: D81 (search for similar items in EconPapers)
Pages: 61 pages
Date: 2024-09
New Economics Papers: this item is included in nep-exp, nep-net and nep-pay
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