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Can Blockchain Technology Help Overcome Contractual Incompleteness? Evidence from State Laws

Author

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  • Mark A. Chen

    (J. Mack Robinson College of Business, Georgia State University, Atlanta, Georgia 30303)

  • Shuting Sophia Hu

    (Hankamer School of Business, Baylor University, Waco, Texas 76706)

  • Joanna Wang

    (HSBC Business School, Peking University, Shenzhen 518055, China)

  • Qinxi Wu

    (Hankamer School of Business, Baylor University, Waco, Texas 76706)

Abstract

Real-world contractual agreements between firms are often incomplete, leading to suboptimal investment and loss of value in supply chain relationships. To what extent can blockchain technology help alleviate problems arising from contractual incompleteness? We examine this issue by exploiting a quasi-natural experiment based on the staggered adoption of U.S. state laws that increased firms’ in-state ability to develop, adopt, and use blockchain technology. We find that, after exposure to a pro-blockchain law, firms with greater asset specificity exhibit more positive changes to Tobin’s Q , research and development, and blockchain-related innovation. Also, such firms appear to rely less on vertical integration, form more strategic alliances, and shift their emphasis to less geographically proximate customers. Overall, our results suggest that blockchain technology can help firms remedy constraints and inefficiencies arising from contractual incompleteness.

Suggested Citation

  • Mark A. Chen & Shuting Sophia Hu & Joanna Wang & Qinxi Wu, 2023. "Can Blockchain Technology Help Overcome Contractual Incompleteness? Evidence from State Laws," Management Science, INFORMS, vol. 69(11), pages 6540-6567, November.
    • Handle: RePEc:inm:ormnsc:v:69:y:2023:i:11:p:6540-6567
    DOI: 10.1287/mnsc.2022.04139
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