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Centralization vs. Decentralization: First Evidence from the Laboratory

Author

Listed:
  • Gabriele Camera

    (ESI, Chapman University)

  • Gary Charness

    (UC Santa Barbara)

  • Nir Chemeya

    (Ben-Gurion University of the Negev)

Abstract

The future architecture of financial systems is a subject of contention, with centralized and decentralized governance proponents. Here we ask: would the architecture affect the quality of decision-making? We propose a game where financial network participants demarcate the ownership of claims to income. This governance task can be decentralized (shared authority), centralized (single authority), or hybrid (alternating authority). Without communication all architectures supported poor outcomes. With communication, decentralization ensured good governance and maximum profits, while centralization did not—lowering communication’s potency in promoting socially optimal decisions. This indicates there is scope for decentralization in innovating financial institutions.

Suggested Citation

  • Gabriele Camera & Gary Charness & Nir Chemeya, 2026. "Centralization vs. Decentralization: First Evidence from the Laboratory," Working Papers 26-06, Chapman University, Economic Science Institute.
    • Handle: RePEc:chu:wpaper:26-06
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    File URL: https://digitalcommons.chapman.edu/esi_working_papers/437/
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    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G3 - Financial Economics - - Corporate Finance and Governance
    • G4 - Financial Economics - - Behavioral Finance

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