Should Gig Platforms Decentralize Dispute Resolution?

Abstract

Problem definition: Disputes on online labor platforms have traditionally been mediated by the platform itself, which is often viewed as unhelpful or biased. However, there are emerging platforms that promise to resolve disputes with a novel tribunal system and relegate dispute resolution to individual platform users through a voting mechanism. We aim to examine the dispute resolution systems used by traditional platforms (i.e., the centralized dispute system) and emerging platforms (i.e., the decentralized dispute system) in order to assess whether the latter has an advantage over the former. Methodology/results: We use game theory to analyze both the centralized and decentralized dispute systems, and we model the tribunal’s voting game using the global games framework. Our findings indicate that in order to achieve a fair voting outcome, it is crucial to have sufficient heterogeneity in the assessments of tribunal members. Moreover, the decentralized dispute system outperforms the centralized dispute system only when the freelancer’s skill level is sufficiently high. Lastly, the decentralized dispute system has the potential to induce a more socially optimal quality level from the freelancer. Managerial implications: Our findings provide insights on the optimal adoption and implementation of the decentralized dispute system. The decentralized dispute system is more effective for tasks that involve subjective evaluations, and platforms should avoid strategies that homogenize the assessments of tribunal members. Moreover, platforms should consider switching to the decentralized dispute system only if they are able to verify the skill level of freelancers through certification or other means. Lastly, the decentralized dispute system may be more appealing to policy makers because of its potential to induce a more socially optimal outcome. Supplemental Material: The online appendix is available at https://doi.org/10.1287/msom.2022.0398 .