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
Super Reefs (Short Film) | Pristine Seas | National Geographic Society
Thank you. Can you see that sunrise? [Music] Foreign. [Music] Ly powerful memory, vivid memory, memory of the most beautiful and healthy pristine coral reef. Foreign. That, you know, it took a year to prepare for this expedition, but actually, it’s tak…
Intro to radioactive decay | Physics | Khan Academy
What comes to your mind when you hear the word radioactive? Well, for me, it was this danger, right? But in this video, we’re going to try to understand what exactly is radioactive or what does it mean and why is it so dangerous and how can the same thing…
Billionaire Investor Bill Ackman's Secret 5-Step Investing Checklist
Go through that strategy and go through how it works. When you come, you know, maybe you’ll override that portfolio manager or not, but what’s the checklist you kind of go through? So we look for very high-quality businesses, what we describe as simple, …
The AI Poison Pill - We Can DESTROY The Slop Channels
This video is brought to you by S. Stick around to hear more about the special offer they’re providing to the entire upper echon Community. Okay, just to get something out of the way right off the bat, here the title isn’t clickbait. Anyone watching this …
Constructing linear and exponential functions from graph | Algebra II | Khan Academy
The graphs of the linear function ( f(x) = mx + b ) and the exponential function ( g(x) = a \cdot r^x ) where ( r > 0 ) pass through the points ((-1, 9)) and ((1, 1)). So this very clearly is the linear function; it is a line right over here, and this …
Senate confirmation as a check on the judicial branch | US government and civics | Khan Academy
When we think about how the executive or the legislative branch have some form of check or power over the judicial branch, a key element of that is the executive’s ability to appoint judges to federal courts, including the U.S. Supreme Court. But it’s not…