Decentralizing Platform Governance: Lawlessness, Fraud and Innovation

Abstract

Rule-making and dispute resolution are essential functions of online platforms. Many of these platforms have traditionally adopted a centralized model of governance to create and enforce rules for platform participants. However, a large number of online platforms, particularly those in China, have recently experimented with various schemes in order to decentralize their governance. This paper represents the first systematic effort to explore the phenomenon of platform decentralization, with a particular focus on innovations from China. Contrary to the existing literature, which suggests that current Chinese innovations have been spurred by the authoritarian government’s undersupply of private law, I will show that these new decentralization initiatives are driven more by the increased demand to address market failures, particularly the rampant fraud plaguing China’s e-commerce industry. Platform decentralization has proved advantageous, helping Chinese online marketplaces tackle information failures in their own reputation systems more efficiently. Decentralization has also enabled platform operators to better respond to enforcement failures through increased engagement with users and by facilitating the exploration of community norms. The promising results of China’s experience in platform decentralization has shown how technology can be employed to enable user-generated justice to govern the digital economy. They further reveal the prospects for Chinese tech giants to take the leap to create more innovations in order to remedy weak market conditions.