Tag Archives: Crime

Smart Ponzi Games in the Blockchain

On the FT’s Alphaville blog, Izabella Kaminska points to a paper by Italian academics arguing that the Ethereum technology tends to incubate Ponzi schemes.

The uniqueness of the “smart Ponzi” is its capacity to protect the identity of the initiator but also its ability to persist even after being exposed. Since contracts are unmodifiable and thus unstoppable there is no central authority to terminate the execution of the scheme or force the initiator to refund victims. What’s more, the inability to shut it down means victims can be led to believe the scheme will last forever.

Does Decentralized Intermediation Add Value?

On the FT’s Alphaville blog, Izabella Kaminska questions the value of decentralization (and thus, blockchain technology) in intermediation.

Decentralisation is, in almost all cases, not an efficiency. To the contrary, it’s a cost that adds complexity and creates an unnecessary burden for both users and operators unless centralised layers are added on top of it — defying the whole point. …

At the end of the day, there are only two groups of people prepared to go to costly lengths to decentralise a service which is already available (in what is often a much higher quality form) in a centralised or conventional hierarchal state. One group is criminals and fraudsters. The other is ideologues and cultists. …

It’s not privacy, because a centralised system can be encrypted just as much as a blockchain-based one.

Crime and Punishment

In a blog post, Alex Tabarrok argues that Gary Becker was wrong to argue that an optimal punishment system combines a low detection and punishment risk with a very severe punishment conditional on detection. Tabarrok argues:

We have now tried that experiment and it didn’t work. Beginning in the 1980s we dramatically increased the punishment for crime in the United States but we did so more by increasing sentence length than by increasing the probability of being punished. …

Why did the experiment fail? Longer sentences didn’t reduce crime as much as expected because criminals aren’t good at thinking about the future; criminal types have problems forecasting and they have difficulty regulating their emotions and controlling their impulses. … As if that weren’t bad enough, by exposing more people to criminal peers and by making it increasingly difficult for felons to reintegrate into civil society, longer sentences increased recidivism.

Instead of thinking about criminals as rational actors, we should think about criminals as children. … So what is the recommended parenting approach? … one thing all recommendations have in common is that the consequences for inappropriate behavior should be be quick, clear, and consistent.

“Inside Job”

The movie Inside Job portrays as

  • evil: Feldstein, Hubbard, Paulson, Rubin, Summers, Wall Street, … ;
  • clueless or not convincing: Bernanke, Campbell, Geithner, Greenspan, Mishkin, Portes, … ;
  • aware (at least ex post): Buiter, Johnson, Lagarde, Lo, Partney, Rogoff, Roubini, Strauss-Kahn, Tett, Wolf, … .

Economics and economists are considered part of the problem rather than the solution. While the movie

  • depicts Ragu Rajan as the hero,

it is silent about the fact that Rajan is one of the most prominent economists.