Economics of Permissioned Blockchain Adoption

Management Science, Forthcoming

52 Pages Posted: 12 Jun 2020 Last revised: 19 Aug 2022

See all articles by Garud Iyengar

Garud Iyengar

Columbia University - Department of Industrial Engineering and Operations Research (IEOR)

Fahad Saleh

Wake Forest University - Schools of Business

Jay Sethuraman

Columbia University

Wenjun Wang

Columbia University - Department of Industrial Engineering and Operations Research (IEOR)

Date Written: July 8, 2020

Abstract

We construct an economic framework for understanding the incentives of the participants of a permissioned blockchain for supply chains and other related industries. Our study aims to determine whether adoption of blockchain is socially beneficial and whether such adoption arises in
equilibrium. We find that blockchain reduces information asymmetry for consumers, thereby enhancing consumer welfare. Consumer welfare gains can be sufficiently large that blockchain adoption is socially beneficial; nonetheless, we find that blockchain adoption does not arise in equilibrium. This situation arises because blockchain adoption costs are borne by manufacturers, and manufacturers cannot extract consumer gains through prices due to the competitive nature of the manufacturing sector. We offer a system of transfers to generate blockchain adoption in
equilibrium when it is socially beneficial.

Keywords: Permissioned Blockchain, Blockchain Adoption, Technology Adoption, FinTech

JEL Classification: O33

Suggested Citation

Iyengar, Garud and Saleh, Fahad and Sethuraman, Jay and Wang, Wenjun, Economics of Permissioned Blockchain Adoption (July 8, 2020). Management Science, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3602376 or http://dx.doi.org/10.2139/ssrn.3602376

Garud Iyengar

Columbia University - Department of Industrial Engineering and Operations Research (IEOR) ( email )

331 S.W. Mudd Building
500 West 120th Street
New York, NY 10027
United States

Fahad Saleh (Contact Author)

Wake Forest University - Schools of Business ( email )

P.O. Box 7659
Winston-Salem, NC 27109-7285
United States

Jay Sethuraman

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States

Wenjun Wang

Columbia University - Department of Industrial Engineering and Operations Research (IEOR) ( email )

331 S.W. Mudd Building
500 West 120th Street
New York, NY 10027
United States

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