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 Immigrant Journey Behind A Silicon Valley Success Story
Immigrants, we get the job done. Today we’re sitting down with one of the best founders of a generation, Tracy Young, co-founder of PlanGrid, which sold to Autodesk for 875 million dollars, who’s back with her new startup called Tiger Eye. But today, sinc…
Personal Pronouns | The Parts of Speech | Grammar | Khan Academy
Hello grammarians! Let’s talk about personal pronouns. But first, let me lay some sentences on you. Jake and I baked a loaf of bread. We baked a loaf of bread. You can learn anything! My friends are cool. They are cool. Now, I’m gonna circle a few of the…
Macaroni Penguins Swim, Surf, and Dodge Seals to Survive – Ep. 2 | Wildlife: Resurrection Island
Imagine having to surf to get home. Then imagine doing it after swimming 300 miles in the roughest ocean on the planet. Not to mention the seals waiting for their chance to rip your little head off. This is just a single day in the extraordinary life of t…
Discovering Gravitational Waves | StarTalk
[Music] 30 million years ago, in a distant galaxy, 30 million light years away, two black holes collided. Each black hole is itself a significant disturbance in the fabric of space and time. When they collide, it creates an even greater ripple that gets …
PURPOSE of WEALTH (Pt4): PROGRESS
Hey there, Alexer! We hope you’re as excited as we are for this fourth installment of the Purpose of Wealth series, especially today when we’re talking about progress. And what is progress, if not the optimization of life? The constant improvement or repl…
Jeff Bezos Customer Obsession 1999
ready. We want to ensure that we have the knowledge and expertise to deliver value to our customers. Each new venture comes with its own set of challenges, but that’s where our adaptability and willingness to learn come into play. We are committed to und…