Can Blockchain Solve the Hold Up Problem for Shared Databases?

Please note: the research report from this report will be first presented on May 13, 2019 at Consensus 2019 as a corporate workshop in collaboration with Forbes, JPMorgan, Johnson & Johnson and the World Economic Forum.

Click here to access the full report.

Click here to read the recently published article about this research in Forbes.

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Consortium and industry-wide databases can help enterprises transact more efficiently, reduce redundancies in recording and transmitting information, and help identify profitable patterns and trends. Despite the fact that consortium and industry-wide databases are technologically feasible and can provide tremendous value, in practice their opportunities are often foregone.

The reason for this is an economic issue called the hold-up problem. Blockchain platforms, when designed correctly, can be the solution.

The hold-up problem occurs when organizations are reluctant to make investments in tools or skills in order to join a collaboration, because those investments make them vulnerable to opportunism by collaboration partners.

As a result of the hold-up problem, mutually beneficial investments, such as the establishment of an industry-wide database, do not take place. The findings of our research indicate that blockchain provides the economic structure for organizations to enter shared databases without fear of being victim to the hold-up problem.

In this whitepaper, we illustrate through case studies the underlying economic drivers of the hold-up problem and the levers by which it can be reduced and ultimately eliminated. We show how this economic problem is pervasive in data collaboration settings and how enterprise and government will be the lead in the capture of the $3.1T in value created by blockchain technology by 2030.

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Can Blockchain Solve the Hold Up Problem for Shared Databases?