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
My Sister Got Malaria ....(And I Didn't) - Smarter Every Day 167
Video about global health issues. Now, here’s the deal: when you think about—let’s make a video about global health issues—you think about statistics and numbers and like money, or you think about your sister who served in the Peace Corps in Sub-Saharan A…
Polynomial identities introduction | Algebra 2 | Khan Academy
What we’re going to do in this video is talk a little bit about polynomial identities, and this is really just a fancy way of seeing whether an expression that involves a polynomial is equal to another expression. So, for example, you’re familiar with x …
What happened with my Property Manager…
What’s up you guys? It’s Graham here! So first of all, thank you for watching. Make sure to sit back, relax, subscribe, hit the like button, and let me give you some backstory on the situation: my experience hiring a property manager and whether or not a…
THIS Will Get Bitcoin To 100K - The Future of Crypto | SALT 2021
Okay, we’re right now in New York City. Why? The SALT conference starts in about an hour. This conference is all about crypto, but some of the panels at this year’s conference are all about what is the regulator going to do? Where are we going with Bitcoi…
Can YOU Fix Climate Change?
Never before in human history have we been richer, more advanced or powerful. And yet we feel overwhelmed in the face of rapid climate change. It seems simple on the surface. Greenhouse gases trap energy from the Sun and transfer it to our atmosphere. Thi…
Belonging | Short Film Showcase | National Geographic
Foreign. [Music] This is what I dream of. Sometimes it feels like I’m still there. [Music] One amongst hundreds of others like me, to travel far to be here is without a name. Thank you. We would watch the moon, rain the water darkened, then celebration…