Footnote:
In: MISQ
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments June 9, 2023 erstellt
Description:
We use Transaction Cost Economics (TCE) to define the Digitization of Transaction Terms shift parameter that describes institutional changes associated with increased digitization in society. We then draw on legal scholarship to analyze how strong smart contracts, which are agreements with automatic execution and enforcement that are not reversible by courts, rely on a new level of Digitization of Transaction Terms. Specifically, they rely on standard digital infrastructures such as blockchain platforms that guarantee automatic execution and non-reversibility. We then argue that strong smart contracts represent a distinct mode of transaction governance compared to markets, hierarchies, or hybrids. This is because each classic governance mode is distinguished by how ex-post adaptation is handled — through public courts, managerial fiat, or both. In contrast, strong smart contracts prevent ex-post adaptation altogether. We propose that when strong smart contracts can be fully specified, they will dominate other governance modes based on certain tradeoffs. These tradeoffs include weighing the benefits of avoiding the holdup problem and lowering contract enforcement costs against the downsides of high ex-ante specification costs and eliminating flexibility for ex-post adjustments to change. We elaborate which institutional conditions that can further facilitate this institutional shift