Modeling the Welfare Effects of Blockchain in the Supply Chain

Document Type : Original Article


1 Ph.D. student of Industrial Management, Azad University, Research Sciences Unit,

2 Professor of Azad University Faculty of Management, Research Sciences Unit,

3 Professor of the Faculty of Management, Azad University, Research Sciences Unit,

4 Assistant Professor of Azad University Faculty of Management, Research Sciences Unit,



Recently emerged in recent years, blockchain technology is a new form of data and service organization encrypting and exchanging all kinds of data by creating a new system of data validation. It is efficient for a group of people who do not trust each other but looking for integration and cooperation in a coherent decision-making process willing to find a common platform to share information. In the case of blockchain in terms of economics and economics of welfare, a question will be raised as to what will be the impact of such technology on the welfare of society. And whether it will necessarily have positive welfare effects due to its advantage. To answer this question, we will provide a competitive market modeling in two cases, with and without blockchain technology in the market (supply chain), which indicates that the welfare effects of the blockchain are generally positive, however, due to new costs imposed on manufacturers, it doesn’t necessarily increase total welfare. The result may be influenced by the type of market, and under oligopoly or perfect competition marker conditions, social welfare may increase.


  • Nilfroshan, Hadi and Ayazi, Seyed Ali, 2019, Assessment of the Scope of Oil and Gas Companies' Activities on Macro Indexes of Readiness to Accept Blockchain Technology,
  • Biais B, Bisiere C, Bouvard M, Casamatta C (2019) The blockchain folk theorem. Review of Financial Studies 32(5):1662–1715.
  • Cao S, Cong LW, Han M, Hou Q, Yang B (2020) Blockchain architecture for auditing automation and trust building in public markets. Computer 53(7):20–28.
  • Capponi A, Olafsson S, Alsabah H (2021) Proof-of-work cryptocurrencies: Does mining technology undermine decentralization? Working Paper .
  • Catalini C, Gans J (2019) Initial coin offerings and the value of crypto tokens. NBER Working Paper . Chen F, Lai G, Xiao W (2016) Provision of incentives for information acquisition: Forecast-based contracts vs. menus of linear contracts. Management Science 62(7):1899–1914.
  • Chod J, Lyandres E (2021) A theory of icos: Diversification, agency, and information asymmetry. Management Science Forthcoming.
  • Cong LW, He Z (2019) Blockchain disruption and smart contracts. Review of Financial Studies 32(5):1754–1797.
  • Cong LW, Li Y, Wang N (2021) Tokenomics: Dynamic adoption and valuation. Review of Financial Studies 34(3):1105–1155.
  • Easley D, O’Hara M, Basu S (2019) From mining to markets: The evolution of bitcoin transaction fees. Journal of Financial Economics 134(1):91–109.
  • Fanti G, Kogan L, Viswanath P (2019) Economics of proof-of-stake payment systems. Working Paper . Foley S, Karlsen JR, Putnins TJ (2019) Sex, drugs, and bitcoin: How much illegal activity is financed through cryptocurrencies? Review of Financial Studies 32(5):1798–1853.
  • Gan J, Tsoukalas G, Netessine S (2021) To infinity and beyond: Financing platforms with uncapped crypto tokens. Working Paper .
  • Griffin JM, Shams A (2020) Is bitcoin really un-tethered? Journal of Finance Forthcoming. Hall NG, Liu Z (2010) Capacity allocation and scheduling in supply chains. Operations Research 58(6):1711–1725.
  • Khan, M. A., & Salah, K. (2018). IoT security: Review, blockchain solutions, and open challenges. Future generation computer systems, 82, 395-411.
  • Hinzen FJ, John K, Saleh F (2021) Bitcoin’s limited adoption problem. Working Paper .
  • Howell ST, Niessner M, Yermack D (2020) Initial coin offerings: Financing growth with cryptocurrency token sales. Review of Financial Studies 33(9):3925–3974.
  • Huberman G, Leshno JD, Moallemi C (2021) An economic analysis of the bitcoin payment system. Review of Economic Studies Forthcoming.
  • John K, Rivera T, Saleh F (2021) Economic implications of scaling blockchains: Why the consensus protocol matters. Working Paper .
  • Irresberger F, John K, Saleh F (2021) The public blockchain ecosystem: An empirical analysis. NYU Stern Working Paper .
  • Li J, Mann W (2020) Digital tokens and platform building. Working Paper . Li L (1985) Cournot oligopoly with information sharing. RAND Journal of Economics 521–536.
  • Lehar A, Parlour C (2021) Miner collusion and the bitcoin protocol. Working Paper .
  • Lyandres E, Palazzo B, Rabetti D (2019) Do tokens behave like securities? an anatomy of initial coin offerings. Working Paper .
  • Nakamoto S (2008) Bitcoin: A peer-to-peer electronic cash system.
  • Narang S, Byali M, Dayama P, Pandit V, Narahari Y (2019) Design of trusted b2b market platforms using permissioned blockchains and game theory. 2019 IEEE International Conference on Blockchain and Cryptocurrency (ICBC), 385–393.
  • Malinova K, Park A (2018) Tokenomics: When tokens beat equity. Working Paper .
  • Poole N, Baron L (1996) Consumer awareness of citrus fruit attributes. British Food Journal 1(98):23–28. Provenance (2015) Blockchain: The solution for transparency in product supply chains. .
  • Pun H, Swaminathan JM, Hou P (2018) Blockchain adoption for combating deceptive counterfeits. Working Paper .
  • Rosu I, Saleh F (2021) Evolution of shares in a proof-of-stake cryptocurrency. Management Science 67:661–672.
  • Saleh F (2021) Blockchain without waste: Proof-of-stake. Review of Financial Studies 34:1156– 1190.
  • Tinn K (2018) ’Smart’ contracts and external financing. Working Paper . Vives X (1984) Duopoly information equilibrium: Cournot and Bertrand. Journal of Economic Theory 34(1):71–94.