Designing Practical Distributed Exchange for Online Communities

Abstract: In many online systems, individuals provide services for each other; the recipient of the service obtains a benefit but the provider of the service incurs a cost. If benefit exceeds cost, provision of the service increases social welfare and should therefore be encouraged -- but the individuals providing the service gain no (immediate) benefit from providing the service and hence have an incentive to withhold service. Hence there is scope for designing a system that improves welfare by encouraging exchange. To operate successfully within the confines of the online environment, such a system should be distributed, practicable, and consistent with individual incentives. This paper proposes and analyzes a simple such system that relies on the exchange of {\em tokens}; the emphasis is on the design of a protocol (number of tokens and suggested strategies). We provide estimates for the efficiency of such protocols and show that choosing the right protocol will lead to almost full efficiency if agents are sufficiently patient. However, choosing the wrong protocols may lead to an enormous loss of efficiency.