Nobel Prize-Winning Economist Shares His Thoughts On Smart Contracts

you won the Nobel Prize for Tata for your working contract theory can you tell me at all about what you think about smart contracts that we're seeing now are they gonna revolutionize everything do they solve all the problems that you were all the problems you were working on that's right they're gonna take the prize away [Music] I must admit for first that I'm know little about smart contracts I'm trying to to understand more about them too as I am about a Bitcoin blockchain all the rest it's all a bit mysterious I'm doubtful that it's going to be a cure-all I mean it seems that for some things it could be quite useful because it can automate certain things and so you know some if I have some sort of insurance contract which says that if certain event happens then I'm gonna get paid something then we can sort of make that automatic so it just comes right into my account I don't have to check or on anything or call up the insurance company and maybe yeah so things like that can certainly help but they're not going to solve the problem fortunately the problems I've been particularly concerned with contracts that are written for the long term and where people people are in long term relationships and economic relationships and they're trying to anticipate what might happen in the future which is very difficult to do and write a contract which takes into account these eventualities they can't do it because the future is very uncertain many things can happen that we don't really expect or predict I don't see how some smart contracts are going to solve that problem or to be more concrete and if we have a long term economic relationship I think it's important that we're on the same page we understand each other if something unexpected comes up we have some reasonable way of dealing with it that makes us both comfortable happy I don't I mean that's much more about communication between us I think at the time we write the contract than it is about any sort of automated device can you give an example of the types of incomplete contracts or them and the bad incentives that those create I use the example of a power plant that locates next to a coal mine and wants to use the coal to burn to make electricity and this is a real example I mean there's empirical work on things like this and the thing is once you've located next to the mine you really want that relationship to work out because they're very costly to now ship the coal in from somewhere else but many things can happen during the course of this relationship so just deciding ahead of time you know exactly what kind of coal how much how much I should pay you and all that very difficult given that the world's going to be changing new sources of energy you know solar solar pairs powers going to come along and that's going to affect the industry but we probably can't anticipate that and write that into the contract and so later on we may get into some argument about I want a different kind of coal and the question is how much should I pay for it and this can be you know costly this kind of argument and and distort incentives and you know I don't think it's smart you know I'd love to see a computer solve that problem but I think we're some way away from that [Music]

Channel: Business Insider

Views: 43,449

Keywords: Business Insider, Business News, Oliver Hart, Nobel Prize, Nobel Memorial Prize in Economic Sciences, contract theory, smart contracts, automation, decision making, business, blockchain

Id: Ee_3Nvl-lGE

Length: 3min 50sec (230 seconds)

Published: Tue Jul 24 2018