From: Black Unicorn <unicorn@schloss.li>
Date: Sun, 19 May 1996 03:53:01 +0800
To: jamesd@echeque.com
Subject: Re: anonymous companies
In-Reply-To: <199605171837.LAA09867@dns1.noc.best.net>
Message-ID: <Pine.SUN.3.93.960518083235.7337H-100000@polaris.mindport.net>
MIME-Version: 1.0
Content-Type: text/plain


On Fri, 17 May 1996 jamesd@echeque.com wrote:

> At 06:42 PM 5/16/96 -0700, Wei Dai wrote:
> >
> > I'll just give one problem: the principal-agent problem.  How do owners of
> > the company make sure the managers operate the company in their best
> > interest?
> 
> Actually looting of companies happens a lot right now today, and very
> seldom leads to criminal charges.  Twice I have lost a job because the
> company I worked for went under, apparently due to looting.

Be careful to distingiush "owner" from "employee."  All to common a
mistake I fear.

Until someone passes a constitutional right to not be fired, well, you're
employeed at the will and by the good grace of the owners and your boss.

> > Solution: reputation.  If the managers don't do the right things, the
> > owners arrange so that the managers lose reputation and won't get hired in
> > the future.  Unfortunately the science of reputation is not so advanced
> > that we know this will actually work.
> 
> At present venture capitalists seem to rely on the sniff-their-arses
> method.  They talk to people and try and get a feel as to whether they
> are planning a robbery.  This method is obviously likely to be less
> effectual as businesses move to the net.

And even this is vulnerable to "last round" problems.

> In some businesses we can solve this problem by cryptographic control
> mechanisms, such as open books banking.

I really wish someone would publish a paper on this.  (hint hint).

> In others, such as net startups,
> I see no solution other than increased reliance on personal individual
> capital.

Still, vulnerable to last round problems.

> Athenian capitalism worked largely on personal capital.  Because of their
> terrible arithmetic system, bookkeeping was really bad, and in consequence
> stock investments tended to go sour.  Socrates lost a bundle in this 
> fashion, which may explain his lack of enthusiasm for capitalists.

He also made a killing on predicting crops by his knowledge of the
weather.  Go with what you know.  If you aren't a good corporate analyist,
that's what mutual fund managers are for.

> > Solution: smart contracts.  This is Nick Szabo's idea of building
> > contractual obligations into cryptographic protocols so that the parties
> > have no choice but to fullfil them.  But again we don't know whether this
> > will actually work for this problem.
> 
> It will work for many particular cases of this problem.

But what happens when there are nuances or circumstances which contracts
do not anticipate?  This "complete" reliablity is also a curse for
flexibility which fast moving entities need to survive.

---
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