Mechanism Design with Blockchain Enforcement

37 Pages Posted: 10 Apr 2020 Last revised: 12 May 2023

See all articles by Hitoshi Matsushima

Hitoshi Matsushima

University of Tokyo - Faculty of Economics

Shunya Noda

University of Tokyo - Faculty of Economics

Date Written: March 14, 2020

Abstract

We study the design of self-enforcing mechanisms that do not depend on trusted third parties (e.g., courts, trusted mechanism designers) or long-term relationships. Instead, we leverage blockchain-based smart contracts. We develop the digital court, a smart contract designed to punish agents who violate agreements, replacing one of the roles of legal enforcement. Our digital court enables the execution of general agreements while maintaining the confidentiality of agreement details, even when deployed on public blockchains. With existing smart contract platforms (e.g., Ethereum), our approach is readily available in practice. Our results demonstrate that, if misused, smart contracts could facilitate illegal agreements.

Keywords: Implementation, Decentralized Mechanism, Smart Contract, Oracle Problem, Self-Judgment

JEL Classification: D47, D82, L86

Suggested Citation

Matsushima, Hitoshi and Noda, Shunya, Mechanism Design with Blockchain Enforcement (March 14, 2020). Available at SSRN: https://ssrn.com/abstract=3554512 or http://dx.doi.org/10.2139/ssrn.3554512

Hitoshi Matsushima

University of Tokyo - Faculty of Economics ( email )

7-3-1 Hongo, Bunkyo-ku
Tokyo 113-0033
Japan

Shunya Noda (Contact Author)

University of Tokyo - Faculty of Economics ( email )

7-3-1 Hongo, Bunkyo-ku
Tokyo, 113-0033
Japan

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