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
Strong base solutions | Acids and bases | AP Chemistry | Khan Academy
When dissolved in water, a strong base like potassium hydroxide will dissociate completely in solution to form hydroxide ions. Potassium hydroxide is an example of a group 1A metal hydroxide. Other examples include lithium hydroxide and sodium hydroxide. …
Salmon Snag | Life Below Zero
So we’re gonna set this net. We’re gonna catch ourselves a bunch of salmon. If we have different kinds of salmon that come here, we’re gonna make dog food, people food, and food for gifts and giving, and trading, and whatever else we feel like doing for t…
What is an argument? | Reading | Khan Academy
Hello readers! Today we shall take the field in rhetorical combat, also known as argument. Argument is when an author wants to convince you of their position. This is my position: you should share this position, and here is why. Argument does not sneak. …
Protecting the Sun Bears of Borneo | National Geographic
People in many cultures still heat Sanders as sneak, and then thunder is believed to have certain body parts that are believed to have medicine and values. For example, gallbladder Sanders play very important roles in the forest ecosystems. They play a ro…
Your Subconscious Mind is Ridiculously Powerful
Paulo, one of the main hosts of the World Cup, was anything but festive. Entire parts of the city remained shut, as cars were stuck on stretches of tarmac as far as the eye could see. The effects soon extended well beyond the city, as the entire country o…
Things You Think You Want (But You Don’t)
A clear financial point gives you the desire to put in the work. The problem is many of you think you want something, but you actually don’t really care about it that much. They are just words. Here are 15 things you think you want but you actually don’t…