Smart Contracts vs Incomplete Contracts: A Transaction Cost Economics Viewpoint

Abstract

Over the last years, with the sudden and rising appeal of blockchain technology, some scholars have begun to investigate smart contracts, namely blockchain-enforced agreements. According to enthusiastic (and sometimes naïve) views, smart contracts are supposed to allow parties to conduct transactions more efficiently than traditional or semantic contracts. This paper challenges that claim. I argue that because of the need for an efficiency-enhancing adaptation of institutional arrangements—a chief problem of transaction cost economics—smart contracts may incur higher transaction costs than semantic contracts.

Keywords: Adaptation, Blockchain, Enforcement, Incomplete contracts, Smart contracts, Transaction costs

JEL Classification: D23, D86, L14, L86, O33