yego.me
💡 Stop wasting time. Read Youtube instead of watch. Download Chrome Extension

Incentives for DROs not to go 'rogue'


3m read
·Nov 8, 2024

There are two dispute resolution organizations or Dr. Alto and Tenna. Tenna and Alto have both been in business for a while. They're both well-respected firms. Both have similar amounts of capital and similarly sized customer bases. They have mutual agreements for procedures for efficiently resolving disputes between clients with the other firm. So, reciprocity agreements basically they have agreements not to impede each other in their work unless the defense of their clients demand it. They have an agreement that disputes between themselves will be resolved using a third-party arbitration organization, Alpha ARB. All these agreements have been useful in gaining trust from customers and suppliers so far.

One day, an evil consultant arrives at the Tenna headquarters and sketches a plan that Tenna could use to get ahead of Alto. Tenna could charge customers a large fee but, in exchange, enable them to profit by defaulting on prisoners' dilemma situations. Tenna would achieve this by using force to block the victim's DRRO, which is Alto, from enforcing the contract. The defaulting Tenna customers would gain more from defaulting on the prisoners' dilemmas than they would have to pay to Tenna in fees. So, on paper, Tenna and its customers would profit at the expense of Alto and their customers.

But the chief of Tenna isn't at all impressed with the plan, and he explains to the evil consultant why it wouldn't work. First of all, Tenna doesn't yet have the extra capital that the plan would deliver, so its means are similar to the means of Alto. Having many units on constant standby ready to mobilize against Alto at any time would increase the cost of running Tenna considerably. Also, if Alto retaliates against Tenna's attempted blocking, there's a high risk that Tenna's forces will suffer the loss of agents and equipment, which is even more expensive.

More importantly, Tenna will be breaking multiple critical contractual agreements. The first time it blocked Alto from enforcing a contract, Alto would immediately open a dispute with the two firms' previously agreed-upon arbitrator, Alpha AB. Alpha AB's motivation to protect its reputation as a fair arbitrator would lead it to rule in favor of Alto. If Tenna refused to pay the hefty penalty issued by Alpha AB, it would find itself with an irreparably damaged trust rating and in virtual economic isolation. It would effectively be an outlaw organization.

Tenna's customers, acting in self-interest, would cancel their Tenna subscriptions and flock to Alto because other organizations on whom they depend, like insurance companies, banks, etc., all stipulate that their clients must be subscribed to a WH list DRRO, and Tenna is now on the blacklist. Tenna would quickly end up with no customers and no supply of money to fund a battle against Alto.

The point of this story is to illustrate that an analysis of the incentives for a DRRO to aggress against another in order to profit shouldn't ignore the indirect knock-on effects of that aggression on a network of cooperation agreements. Of course, with enough capital, maybe Tenna could still seize power, but in the kind of society I've sketched, I don't think it will be nearly as easy or as likely as Randy's analysis suggests.

More Articles

View All
2017 AP Calculus AB/BC 4a | AP Calculus AB solved exams | AP Calculus AB | Khan Academy
We are now going to cover the famous, or perhaps infamous, potato problem from the 2017 AP Calculus exam. At time ( T ) equals zero, a boiled potato is taken from a pot on a stove and left to cool in a kitchen. The internal temperature of the potato is 91…
My Investing Plan for 2022...
So it’s that time of year. Time to start making plans and setting goals for 2022, because yes, we only have two weeks left in 2021. It’s pretty ridiculous if you ask me. But in this video, I’m going to be running through my full investing plan for next ye…
Ron Conway at Startup School SV 2014
He’s back for a day or an hour. There’s lights behind that thing. Um, okay, so I interviewed Ron on this stage. We’re on stage at Startup School in 2012, and the video’s on YouTube. And Ron told a lot of the good stories then, so I’m not gonna ask him abo…
MORE BANKS ARE COLLAPSING (How To Prepare)
What’s up, Graham? It’s guys here. And if you thought the banking collapse was over, well, think again. In the middle of mass withdrawals and declining savings, First Republic could be the next bank to fail, even after two multi-billion dollar bailouts. …
Khan Academy Best Practices for Middle School
Hey everyone, this is Jeremy Shifling with Khan Academy. Thanks so much for joining us this afternoon. Um, you’re in for a very special treat today because we have Khan Academy ambassador and all-star middle teacher Shalom with us today, um, who’s been us…
Genius: Aretha Chain of Fools Trailer | National Geographic
[Applause] [Music] I’m writing a new song. It’s gonna hit you hard. I thought you were my man. It’ll get under your skin, right down to the ball. It’s gonna be a whole new vibe that brings people together. I’m just unlinking your chains. Well, you only go…