Friday, January 3, 2014

Why do we need a value accounting system?

First published on 3 January 2014 and last modified on 23 February 2015

With the development of digital technologies and the advent of the Internet the economy is following a trend of decentralization. The most innovative environments are open source communities and peer production is on the rise. The crowd innovates and produces. But the crowd is organized in loose networks, it is geographically dispersed, and contributions to value creation follow a long tail distribution. What are the reward mechanisms in this new economy?

Our thesis is that in order to reward everyone who participates in value creation, in this context, we need to record individual contributions and distribute the revenue according to a preestablished algorithm. In other words, we need to do value accounting, or accounting of all contributions to value creation processes, and to crunch them all together, for all the participants, using a mathematical formula to calculate a % for every participant. This method for redistribution must be established at the beginning of the value creation process, in a transparent way. It constitutes a contract among participants, and it allows them to estimate their returns on their investments. We call this the value accounting system.

For the rest of this article we will try to explain why a value accounting system is needed in a more decentralized economy, and unavoidable in a p2p economy.