Lecture 4: Smart Contracts as a Solution to a Coordination Problem

[SQUEAKING] [RUSTLING] [CLICKING] ROBERT TOWNSEND: OK, we'll get started. Thank you for coming. Today is lecture 4, "Smart Contracts as a Solution to a Coordination Problem.

It's still about distributed ledgers, but we're going to add on top of that not just information use, but also contracting.

The longer subtitle, commodity space with location dates and states. The policy objective is the same.

The Pareto criteria, we will also have fragmented markets the way we did last time. The implementation is going to-- problem is going to have something to do with privately issued securities, which are circulating around as monies.

And without the ability to coordinate with their smart contract, there will be market crises. And so we're featuring this multi-agent smart contract.

So a little more detail. Extensions of the theory that we started to cover last time, but this time, explicitly about time and risk.

And then we'll talk about getting policy guidance from the data. As I said last time, I'm trying to put discipline on myself and the research, that we shouldn't just be exploring case studies or potential applications that potentially use these new technologies, we want to know what economic problem exists out

there and whether or not we can help mitigate the problem. So we're going to use this efficiency benchmark that we did last time, and I'll show you how to use it with actual data, although that's a bit of a summary.

And then we'll, like last time, do some policy guidance that comes from theory. What's the logic according to the theory of what can go wrong when you have privately issued circulating debt?

The idea is not to get rid of the debt, but to provide some coordination to avoid these financial crises.

And this comes up in at least four seemingly distinct venues, but they have in common this underlying theory.

So again, I think you've seen the pattern here, which is, take the theory seriously. Even when it was designed and written without these kinds of considerations in mind, there are huge lessons to be learned from going back to it and thinking about the new technologies.