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
The Ponzi Factor - Short Trailer
When we think about the stock market, we think about money, the finance industry, businesses, and making money from investing in successful businesses. The belief is investing in successful businesses is what leads to investment profits, and there’s a dir…
The Philosophy of the Sith | An Examination of the Dark Side (Star Wars)
The Sith are the main villains of one of the most influential movie franchises: Star Wars. The most iconic member of the Sith Lords is Darth Vader, a tragic character who used to go by the name of Anakin Skywalker. Anakin was a promising Jedi apprentice t…
2015 AP Biology free response 2 a b
All right, cellular respiration includes the metabolic pathways of glycolysis, the Krebs cycle, and the electron transport chain, as represented in the figures. So we have the figures here of glycolysis, the Krebs cycle, and the electron transport chain. …
How I Bought My NEW Las Vegas Home For $0
What’s up you guys, it’s Graham here! So, as some of you know, I recently bought a home in Las Vegas, and I’m gonna be moving from California full-time by the end of the year. However, even though there have been a multitude of various reasons behind thi…
The 5 things I wish I knew before becoming a Landlord...
What’s up you guys? It’s Graham here. So let’s break down some misconceptions and discuss some of the things I wish I would have known before becoming a landlord. With this, you get the advantage of learning from my mistakes and starting off much further …
Multi-step word problem with Pythagorean theorem | Geometry | Khan Academy
We’re told that Laney runs a string of lights from the ground straight up to a door frame that is 2.5 meters tall. Then they run the rest of the string in a straight line to a point on the ground that is six meters from the base of the door frame. There a…