Ensuring effective management of decentralized autonomous organizations under information asymmetry

Abstract

One of the factors negatively affecting management effectiveness in decentralized autonomous organizations is implicit centralization of decision-making within a certain group of participants. Such centralization can be caused by both economic reasons related to uneven distribution of voting power and information and social ones related to participants’ status and control over information. The decision-making process in decentralized autonomous organizations has been analyzed in a situation when participants face information asymmetry, strategic behavior, and lack of centralized control. The principal–agent model has been considered as a formal basis, in which tokens’ holders act as the principal and project initiator, who forms an offer of a certain quality, as the agent. The conditions under which it is possible to form an equilibrium that ensures high-quality projects choice have been investigated. Incentive mechanisms have been proposed to ensure the interest in the principal’s participation in managing organization. Two directions have been considered: changing the agent’s remuneration structure based on payments differentiation and participation costs compensation for the principal. It has been demonstrated that minimal institutional changes can significantly improve organization’s management effectiveness, while maintaining decentralized nature of decision-making.