Can Blockchain Solve the Hold-Up Problem for Shared Databases?

Abstract

Consortium and industry-wide databases can help enterprises transact more efficiently, reduce redundancies in recording and transmitting information, and help identify profitable patterns and trends. Despite the fact that consortium and industry-wide databases are technologically feasible and can provide tremendous value, in practice they often do not succeed. One cause of this is an economic issue called the hold-up problem. The hold-up problem occurs when organizations are reluctant to make investments in tools or skills in order to join a collaboration, because those investments make them vulnerable to opportunism by collaboration partners. Blockchain can provide the economic structure for organizations to enter shared databases without fear of being victim to the hold-up problem. In this whitepaper, we illustrate through case studies the underlying economic drivers of the hold-up problem, levers by which it can be reduced, and the path forward for complementary research in technological standards and consortium governance.

Keywords: governance, blockchain, blockchain consortia, hold-up problem

JEL Classification: D02, D23, D70, D86