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Economics of Smart Contracts: Efficiency and Legal Challenges

In: Disintermediation Economics

Author

Listed:
  • Guenther Dobrauz-Saldapenna

    (PwC Zurich)

  • Mark A. Schrackmann

    (PwC Zurich)

Abstract

Smart contract is a significant innovation for the performance of industrial, commercial and administrative tasks. The concept of smart contracts is well developed in the field of Computer Science but its uses in the market and the legal services are not as mature yet. Smart contracts bring challenges in both economic and legal terms. This chapter describes what a smart contract is and the possibilities of use. Then it explores the role of smart contracts in the economic theory focusing particularly on the topics of contract completeness and dynamic contracting. Functional inefficiencies and limitations in contract and algorithmic design are persistent in both the analogue and the smart contracts and prohibit contract completeness in both the versions. On the other hand, the static nature of smart contracts prohibits dynamic contracting between the economic agents. This can be remedied with deviations from purely decentralized designs with the inclusion into the smart contracts of physical intermediaries (curators) and programmable intermediaries (oracles). Finally, the property of self-executability can be improved with Ricardian contracts that can add discretion and flexibility.

Suggested Citation

  • Guenther Dobrauz-Saldapenna & Mark A. Schrackmann, 2021. "Economics of Smart Contracts: Efficiency and Legal Challenges," Springer Books, in: Eva Kaili & Dimitrios Psarrakis (ed.), Disintermediation Economics, edition 1, chapter 0, pages 33-46, Springer.
    • Handle: RePEc:spr:sprchp:978-3-030-65781-9_3
    DOI: 10.1007/978-3-030-65781-9_3
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