Smart Contracting in Network Markets

Abstract

With complete-information bilateral bargaining in network settings, holdup is eliminated when contracts across the network are agreed atomically (all or none) via a smart contract. Applications include over-the-counter asset trading, third-party-financed purchase agreements, and land assembly. Under a novel extensive-form bargaining protocol, a firm can give a "greenlight" to the terms of a contract proposed to that firm, and the protocol automatically converts those terms into a binding contract if the terms proposed to all other firms are likewise given greenlights. In any Perfect Bayesian Equilibrium with Markov strategies, firms immediately agree on socially efficient contracts.

Keywords: network, bargaining, smart contract, atomic settlement, holdup, over-the-counter

JEL Classification: D47, D60, D70, G12, K22, C70, L14