Economics of Permissioned Blockchain Adoption

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