Contracting in the Smart Era: The Implications of Blockchain and Decentralized Autonomous Organizations for Contracting and Corporate Governance

Abstract

This paper explores blockchain technology's potential to alter contracting both in the market and within organizations. We identify and discuss how blockchain reduces certain types of transaction costs while introducing additional costs that have not been present in traditional contracts. Blockchain technology also presents a new method to mitigate or avoid certain types of agency costs that stem from contracting with agents inside the firm. Through this theoretical discussion, our paper proposes several avenues for future research on how blockchain may alter contracting and corporate governance.

A Systematic Review of Blockchain Literature in Logistics and Supply Chain Management: Identifying Research Questions and Future Directions

“…(1) Blockchain alters transaction costs and affects firm boundaries by using smart contracts [46] (2) Blockchain potentially involves a reduction in transactions costs, as well as a more market-oriented governance structure for buyer-supplier transactions by the limitation of opportunistic behavior, as well as the uncertainty of environment and behavior [47] (3) Blockchain technology has the potential to reduce or even avoid cost, and thereby define nine effects of blockchains on supply chain transactions under the three enablers: transparency, trust and disintermediation [48] How does the blockchain change transaction costs? How can the transaction costs of organizational structure be reduced through blockchain applications?…”

“…Principal-agency theory was used by Beck et al [51] to examine governance dimensions through a blockchain setup, with coordinated incentives enabling agents to select their own behavior, but prompt to select actions that correspond with the system design goals. Murray, Kuban, Josefy and Anderson [46] examined the impact of blockchain on monitoring agent motivations and firm operations, and then discuss the lack of impact on excess expenses and interest alignment compensation.…”

“…Ahluwalia et al [65] discuss how blockchain can help startups to deal with their financing issues from a transaction cost perspective, and thereby build a model to prove the effectiveness of blockchain technology for this application. Using smart contracts, Murray, Kuban, Josefy and Anderson [46] investigated how blockchain alters transaction costs and affects firm boundaries, while Chang, Chen and Wu [29] showed that blockchain-based systems can also reduce opportunistic behavior from both trading parties, since verifiable smart contracts are immutably recorded on the blockchain.…”

Header Bidding as Smart Service for Selling Ads in the Digital Era

“…The mechanisms for bargaining and control in header bidding resemble smart contracts as discussed in the context of smart and autonomous technologies. A smart contract is a computerized transaction protocol that executes the terms of a contract (Avital, 2018;Murray et al, 2019); it minimizes the need for trusted intermediaries between transacting parties (Christidis and Devetsikiotis, 2016). Smart contracts are mostly relevant in the context of blockchain technology (Beck et al, 2018;Murray et al, 2019).…”

“…A smart contract is a computerized transaction protocol that executes the terms of a contract (Avital, 2018;Murray et al, 2019); it minimizes the need for trusted intermediaries between transacting parties (Christidis and Devetsikiotis, 2016). Smart contracts are mostly relevant in the context of blockchain technology (Beck et al, 2018;Murray et al, 2019). They also gain importance in auctions (Hahn et al, 2017) and the publishing of ads (Bartoletti and Pompianu, 2017).…”