# kaal:claim:3782210-024

**Claim.** In hierarchical structures where members are siloed and have few formal connections across tiers, letting service providers create the regulations produces moral hazard, because the provider has an incentive to weaken standards and regulations.

**Type.** failure  **Support.** argued

**Holds when.**

- hierarchical, siloed organizations
- self-regulation by service providers

**Source quote.**

> In a hierarchical structure, where members are siloed and have few formal connections with those immediately above and below their tier in the hierarchy, this leads to the moral hazard problem that the service pro- vider has an incentive to weaken the standards and regulations.

**From.** Craig Calcaterra, Wulf A. Kaal, *The Importance of Reputation for the Evolution of Decentralization* (2021), Consequences of the architecture, page 9

**Cite as.** Craig Calcaterra, Wulf A. Kaal, The Importance of Reputation for the Evolution of Decentralization (2021). SSRN: https://ssrn.com/abstract=3782210

**Verify.** sha256 of source PDF `9cc531ab239f6266c8aeddcc8e54f4c06029c44e825444bee137bbcc0c9d0a8e` at https://raw.githubusercontent.com/wulfkaal/Academic-Papers/main/papers/pdf/Calcaterra%20and%20Kaal%20-%202021%20-%20The%20Importance%20of%20Reputation%20for%20the%20Evolution%20of%20Decentralization.pdf

**Failure mode.** Self-regulation moral hazard  (family: regulatory-capture-and-incumbent-advantage)

**Topics.** risk-and-incentives, institutional-design, regulatory-failure

**Keywords.** moral-hazard, self-regulation, hierarchy, regulatory-capture

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