Blockchain and contract theory: modeling smart contracts using insurance markets

2019 ◽  
Vol 46 (6) ◽  
pp. 803-814 ◽  
Author(s):  
Alpen Sheth ◽  
Hemang Subramanian
Keyword(s):  
Economic Model ◽  
Reference Model ◽  
Insurance Industry ◽  
Principal Agent ◽  
Smart Contracts ◽  
Content Type ◽  
Agent Model ◽  
Smart Contract ◽  
Economic Transformations ◽  
Principal Agent Model

Purpose The purpose of this paper is to model blockchain-based smart contracts specifically for the insurance industry. The authors introduce the concept of smart contracts and further discuss the implementation of a decentralized insurance marketplace, namely Etherisc, using smart contracts on the Ethereum blockchain platform. Design/methodology/approach The authors employ three methods in this paper. The first one is a design illustration of a live application, namely, Etherisc. The second one is an economic model using demand–supply and equilibrium economics. The third one is an illustration using principal–agent modeling using constrained optimization. Findings The findings illustrate the following: in the design discussion, the authors demonstrate the architecture of a live Ethereum-based smart contract system. In the economic model, the authors illustrate how decentralized smart contract systems can increase social welfare by shifting demand and supply by reducing transactional costs. In the principal–agent model, the authors show how both the principal and agent are positively benefited by various mechanisms. Originality/value The paper is an original contribution and can be used as a reference model to study insurance or other similar marketplaces and the underlying economic transformations happening therein.

Incentive strategy about technology innovation based on knowledge ecological coupling in strategic emerging industry

Kybernetes ◽  
2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Yue Long ◽  
Lang Lu ◽  
Pan Liu
Keyword(s):  
Technology Innovation ◽  
Volterra Model ◽  
Principal Agent ◽  
Profit Model ◽  
Content Type ◽  
Agent Model ◽  
Coupling Relationship ◽  
Principal Agent Model ◽  
Low Efficiency ◽  
Innovation Chain

PurposeThe purpose of this paper is to solve the problem of low efficiency on knowledge resources allocation in the strategic emerging industry (SEI), an incentive model of technology innovation based on knowledge ecological coupling is designed.Design/methodology/approachFirst, a principal–agent model of knowledge inputs and a knowledge ecological coupling model based on an improved Lotka–Volterra model are constructed. In addition, a numerical example about Chongqing Yongchuan industrial park, the emulation analysis and the associated discussions are conducted to analyze the equilibriums of principal–agent in different knowledge inputs. Further, the paper analyzes the evolutionary equilibrium in knowledge ecological coupling and reveals the dual adjustments of the node organization on knowledge inputs.FindingsThus, this paper shows that by establishing the relationships of knowledge ecological coupling based on “mutualism and commensalism,” node organization raises the level of knowledge inputs; an incentive mode of “knowledge ecological coupling relationship + technology innovation chain” is conductive to substantially improving the efficiency of knowledge resource allocation, and to stimulate the vitality of node organization for technology innovation in the strategic emerging industry (SEI).Originality/valueThis paper contributes to the extant researches in two ways. First, this paper reveals the dual adjustments of the node organizations in inputting knowledge, which broadens the vision and borders of the researches on traditional knowledge management. The methods of the traditional principal–agent model and the knowledge input/output profit model are also expanded. Second, this paper verifies that applying the mode of “knowledge ecological coupling relationship + technology innovation chain” in practice is conducive to enhancing the efficiency of the cross-organizational knowledge allocation in the strategic emerging industry (SEI).

Double-sided moral hazard, information screening and the optimal contract

2016 ◽  
Vol 6 (4) ◽  
pp. 404-431 ◽  
Author(s):  
Jin Xue ◽  
Yiwen Fei
Keyword(s):  
Venture Capital ◽  
Moral Hazard ◽  
Capital Investment ◽  
Principal Agent ◽  
Optimal Contract ◽  
Fixed Income ◽  
Content Type ◽  
Agent Model ◽  
Venture Capital Investment ◽  
Principal Agent Model

Purpose In the practice of venture capital investment, the venture capital will not only claim the share of the enterprise’s future output, but also a certain amount of fixed income. The purpose of this paper is to examine the optimal contract which blends the variable ownership income and the fixed income theoretically so as to provide a keen insight into the venture capital practice. Design/methodology/approach This paper establishes an extended principal-agent model and researches on the design of optimal contract dominated by venture capital with double-sided moral hazard and information screening. Findings By establishing theoretical models, the main findings are: first, high-quality enterprise tends to relinquish less ownership but give more fixed return to the venture capital as compensation in order to obtain the venture capital financing; second, low-quality enterprise is willing to relinquish more ownership but give less fixed return to the venture capital for financing; third, due to the existence of double-sided moral hazard, neither of the venture capital and the enterprise will exert their best effort. Originality/value This paper furthers the application of principal-agent model in the field of venture capital investment and researches on the optimal contract, considering double-sided moral hazard and adverse selection at the same time originally.

Involvement of private actors in the provision of urban sanitation services; potential challenges and precautions

2015 ◽  
Vol 26 (2) ◽  
pp. 270-287 ◽  
Author(s):  
Emmanuel Yeboah-Assiamah
Keyword(s):  
Private Sector ◽  
Public Choice ◽  
Principal Agent ◽  
Policy Makers ◽  
Content Type ◽  
Agent Model ◽  
The Public ◽  
Sanitation Services ◽  
Urban Sanitation ◽  
Principal Agent Model

Purpose – The purpose of this paper is to use relevant models and theories to conceptualize the prospects and challenges associated with private sector involvement in the provision of sanitation and environmental services in urban settlements of developing African economies. Design/methodology/approach – The study adopts the public choice theory and principal-agent model in its conceptualization and analysis. Retrospective literature analysis within the qualitative research approach has been employed for the study. It draws extensively on existing classical theoretical and current empirical literature on privatization of urban sanitation services in developing countries. Findings – The study observes that privatization is a necessary tool for enhancing quality and responsive sanitation service delivery but there must be some mechanisms to prevent any latent challenges. The study also observes that the same problems associated with the public sector could transcend into the private sector if key measures are not taken into consideration. Practical implications – The process of privatizing or contracting out must ensure competition, enough communication to all stakeholders as well as involving expertise in the bidding process. The process also requires strict monitoring and supervision; these call for an appropriate legal framework to regulate privatization. The paper reminds urban administrators and policy makers to be circumspect in the privatization process. If the process of privatization is carried out effectively, urban sanitation services will be provided effectively and efficiently. Originality/value – The paper adapts the public choice and principal-agent model to assess privatization processes in developing African countries. This study will be of importance to urban administrators, public officials and policy makers in general.

Why Were Workers Whipped? Pain in a Principal-Agent Model

1990 ◽  
Vol 100 (403) ◽  
pp. 1109 ◽  
Author(s):  
Michael Suk-Young Chwe
Keyword(s):  
Principal Agent ◽  
Agent Model ◽  
Principal Agent Model

Administrative risks challenging the adoption of smart contracts in construction projects

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Asli Pelin Gurgun ◽  
Kerim Koc
Keyword(s):  
Construction Projects ◽  
Risk Mitigation ◽  
Research Question ◽  
Group Discussion ◽  
Mitigation Strategies ◽  
Risk Category ◽  
Smart Contracts ◽  
Content Type ◽  
Smart Contract ◽  
Criteria Weights

PurposeAs a remedy to usually voluminous, complicated and not easily readable construction contracts, smart contracts can be considered as an effective and alternative solution. However, the construction industry is merely known as a frontrunner for fast adoption of recent technological advancements. Numerous administrative risks challenge construction companies to implement smart contracts. To highlight this issue, this study aims to assess the administrative risks of smart contract adoption in construction projects.Design/methodology/approachA literature survey is conducted to specify administrative risks of smart contracts followed by a pilot study to ensure that the framework is suitable to the research question. The criteria weights are calculated through the fuzzy analytical hierarchy process method, followed by a sensitivity analysis based on degree of fuzziness, which supports the robustness of the developed hierarchy and stability of the results. Then, a focus group discussion (FGD) is performed to discuss the mitigation strategies for the top-level risks in each risk category.FindingsThe final framework consists of 27 sub-criteria, which are categorized under five main criteria, namely, contractual, cultural, managerial, planning and relational. The findings show that (1) regulation change, (2) lack of a driving force, (3) works not accounted in planning, (4) shortcomings of current legal arrangements and (5) lack of dispute resolution mechanism are the top five risks challenging the adoption of smart contracts in construction projects. Risk mitigation strategies based on FGD show that improvements for the semi-automated smart contract drafting are considered more practicable compared to full automation.Originality/valueThe literature is limited in terms of the adoption of smart contracts, while the topic is receiving more attention recently. To support easy prevalence of smart contracts, this study attempts the most challenging aspects of smart contract adoption.

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