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
2035: The Point of No Return
[Music] In some of the most popular films, writers will often use a point of no return to force their main character into action. It’s a point in the story where the protagonist can’t return to their former life without going through trials that bring int…
Confessions of a Tomb Robber | Lost Tombs of the Pyramids
Dr. Colleen Darnell hunts for clues to solve the mystery of why dozens of pharaohs were removed from their original tombs and reburied in an unmarked grave. [Music] Could this ancient papyrus hold the answer? One of the more remarkable documents to surv…
Things To Do Online #18 -- DONG!
Hey, Vsauce. Michael here. And today we’ve got DONG, things you can do online now, guys. Let’s begin with a recommendation from @catchfoot, supercut.org. It’s a reservoir of video collections. For instance, every Steve Buscemi death on camera. Four minut…
The FED Just Popped The Market Bubble
What’s up guys, it’s Graham here. So first of all, I am shocked that more people aren’t talking about this, because we are about to face the worst U.S. debt crisis in history. Instead of addressing the problem head-on, we’re putting up statues of Walter W…
How to Build a Successful YouTube Channel in 2023 with Ruri Ohama
You might look at successful YouTubers and think they got lucky, but sometimes it’s a process of learning. I feel like I was just posting random videos, not necessarily the best videos, not necessarily the videos that people wanted to watch. So, I was jus…
Growth Hacks Rich People Use All The Time
Everyone’s got access to growth opportunities, but not everyone takes them. The main reason they fail to do so is because they’re just not aware of them. It’s really easy to miss something you’re not actually looking for. By the end of this video, you’ll …