Token Economy for Online Exchange Systems ( Extended

This paper studies the design of online exchange systems that are operated based on the exchange of tokens, a simple internal currency which provides indirect reciprocity among agents for cooperation. The emphasis is on how the protocol designer should choose a protocol a supply of tokens and suggested strategies to maximize service provision, taking into account that impatient agents will comply with the protocol if and only if it is in their interests to do so. The protocol is designed in such a way that it is robust to (small) errors in the designer’s knowledge of the system parameters. We prove that robust protocols have a simple pure threshold structure and there is a unique optimal supply of tokens that balances the token distribution in the population and achieves the optimal efficiency. In the meanwhile, we also emphasize that choosing the wrong token supply can result in an enormous efficiency loss.