Efficacy of Smart Contracts in Enhancing System-Based Trust in Construction Industry: System Dynamics Approach

Abstract

This research investigates the causative relationship between trust influencing factors and Blockchain-based smart contract features by addressing the complexity of trust dynamics in construction industry. The objective was to identify key factors causing system-based trust issues and see the impact of Smart Contracts in improving system- based trust among stakeholders. Increasing adversarial relationships and degrading culture of trust among construction stakeholders resulting from the failure of traditional contracts led to the development of problem statement. From literature key factors effecting system-based trust and the key features of Blockchain-based smart contracts were identified. Through content analysis, surveys, and field expert interviews these variables and their relationships were shortlisted. Finally, relationships among 9 features of smart contracts and 16 trust factors were studied in a systems thinking diagram and a system dynamics model. Systems thinking diagram indicated that smart contract based contractual system improved system-based trust. The selected stocks in System Dynamics (SD) model: Opportunistic Behavior, Protection from insolvency and Transparency, all showed positive impact once a smart contract was introduced in the system. This research provides a tech-based solution for the factors that engender trust issues among stakeholders in construction industry by proposing blockchain-based smart contracts. Majority of the studies in construction field has focused on the “black box” trust from a plethora of angles however it has not been discussed from the perspective of complexity. Similarly, neither have smart contracts been discussed for its efficacy in enhancing the system-based trust.