Smart Contracting in Network Markets

Abstract

With complete-information bilateral bargaining in network settings, holdup is eliminated when contracts across the network are agreed atomically (all or none) via a smart contract. Applications include over-the-counter asset trading, third-party-financed purchase agreements, and land assembly. Under a novel extensive-form bargaining protocol, a firm can give a "greenlight" to the terms of a contract proposed to that firm, and the protocol automatically converts those terms into a binding contract if the terms proposed to all other firms are likewise given greenlights. In any Perfect Bayesian Equilibrium with Markov strategies, firms immediately agree on socially efficient contracts.

About the speaker

Darrell Duffie is a Professor of Finance at the Stanford Graduate School of Business. He is widely regarded as one of the most influential theorists in modern asset pricing. His textbook Dynamic Asset Pricing Theory is a standard reference in doctoral finance programs. Together with Rui Kan, he developed affine term structure models of interest rates, and with Kenneth Singleton he pioneered reduced-form credit risk models, which became the foundation for the valuation of defaultable bonds and credit derivatives.

In recent years, his research has focused primarily on market infrastructure and financial regulation, including the reform of benchmark interest rates following the LIBOR scandal, central clearing, and the resilience of the U.S. Treasury market. In 2009, he served as President of the American Finance Association. He is an elected Fellow of the Econometric Society and a member of the U.S. National Academy of Sciences.

The host at the School of Economics and Business is Igor Lončarski PhD.

We anticipate your attendance at the seminar with pleasure and appreciate your participation.