The smart contract revolution: a solution for the holdup problem?

Abstract

This paper examines the concept of the holdup problem from an entrepreneurial angle in a world with smart contracts. All entrepreneurs need to use contracts. As theorists (Williamson 1979; Hart and Moore 1999; Hart 2009) point out, information asymmetry and opportunism are part of any contractual transaction between agents. This means that entrepreneurs have to deal with incomplete contracts. Blockchain was born in 1994 (Satoshi Nakamoto), alongside the emergence of smart contracts (Nick Szabo). The supporters of these IT protocols believe that they provide a solution to the holdup problem (Williamson 1985). In this article, we return to the models developed by Hart and Moore (1999) and Hart (2009) and discuss whether smart contracts correspond to the requirements discussed in the literature. We show that entrepreneurs need to carefully consider the use of smart contracts in function of the type of transaction they aim to put in place.