Accounting for pandemics and economic crises management: Moral hazard, blockchain, and smart-contracts

Abstract

During economic crises, sovereign states and central banks support the general economy and firms with a range of emergency measures, such as the allocation of subsidies to enterprises and citizens. The sudden availability of money without the need for any consideration by the recipient leads the way to inappropriate conduct known as moral hazards, such as diversion or improper use of the financial resources received. The moral hazard arises from the individual tendency to rational behavior when in the presence of information asymmetry, inadequate controls, or favorable contractual positions. To reduce moral hazard, and to preserve the intentionality of the states, information asymmetry must be reduced. Avoiding moral hazard is particularly important in cases such as the COVID-19 pandemic, but also during economic crises and other emergency situations. This paper conceptualizes a relevant topic for the economy and accounting fields of study because information tends to be naturally asymmetrical. Traditional accounting is limited by the fact that some accounting practices or techniques can be used to reduce the effect of the pandemics on the economic performance of organizations. In our study we propose a way to reduce the natural subjectivity in accounting and reporting, using blockchain and smart contracts technologies, as a solution to information asymmetry during crises (such as economic ones or pandemics)