The Blockchain's role in reducing transaction costs: a review of the literature, theories and models

Abstract

Much attention has been directed towards digitization's potential effect on both transaction costs and organizational designs over the past few years. In particular, digitalization is argued to dramatically lower transaction costs, not only within organizations but also across multiple entities. Blockchain technology firmly positioned itself within mainstream awareness as the groundbreaking emerging technology. The emerging blockchain technology holds the promise of removing the requirement for trustworthy entities (central intermediaries) to secure transactions through digital systems.

This paper explores the positions of this technology in cost management through the prism of the institutional transaction costs economy approach

We argue that technology based on blockchain has significant promise to help to reduce both economic and social cost impact on the transaction. We employ the setting for developing better insight into different industries & corporate functions in which information asymmetries between the buyer and real estate promoter as well as the associated transaction costs involved in the property transfer are large and frequently intractable.

We outline the ways in which blockchain technologies embedded in a decentralized transaction-based system can help overcome these issues in the area of asset management. Our results suggest that information sharing regarding assets performance moderates both the effects of contractors-side adverse choice as well as decrease the vertical moral hazard of assets through generating a disciplinary incentive. Additionally, in this work, we find evidence of an incentive for assets to exhibit opportunistic behavior when value-added Information of the asset nature are available.

JEL Classification: D00

Paper type: Theoretical Research