The Blockchain Surplus

Abstract

Blockchain permits immutable and total record-keeping in smart contracts. This can generate an economic surplus for all parties in our model of moral hazard where a longlived agent provides a service to a sequence of short-lived customers. Under traditional contracting, the agent treats all customers independently with a single static contract. The blockchain, by supporting history dependence across the agent's relationships with individual customers, enforces dynamic and more efficient incentives and risk-sharing. Further, contracting on the blockchain can be essential to whether the agent's business is viable, especially when the customer market is sufficiently large or tight.

Keywords: immutability, total record-keeping, blockchain, smart contract