View source for WinterMilestone 4 AtinMittra ClearingHouse

This idea is a system approach to the Market Governance topic.

== Abstract ==


The threat to workers of not receiving payment from requesters is a clear fear within the community. This fear translates into behavior such as workers not responding to new requesters due to their unproven track record or only responding to a few HITs of a batch (user interviews). Because the requesters bring the work and payment, they are the demanding source of labor in the market and thus have an unfair advantage over the workers. Without a governing body to regulate the payment of work, workers are left to fend for themselves and act defensively to avoid receiving poor ratings or missed payments. The current solution is to warn other workers of bad requesters, thus only providing methods of learning after the fact instead of avoiding the problem altogether. In light of this behavior, we have realized that workers need a way to ensure payment while requesters need a way to ensure effective work is being done for that payment. Working directly with parties is a system that is outdated in traditional markets and has since been replaced by intermediaries in charge of ensuring all parties are receiving what they have purchased. This in turn allows for greater usage of the market by hedging risk from each buyer/seller and has thus allowed for markets to scale. In order to ameliorate the risk to each worker and requester in a HIT, an intermediary body will act as a clearinghouse creating an agreement between the two bodies and ensuring the effective delivery of the service and payment. The clearing house will operate within a larger exchange in which the HITS are posted. Instead of direct communication between the worker and requester, the two parties will be able to respond to the exchange and will be ensured the task/payment will be completed by the clearinghouse. This system is heavily modeled upon modern day stock exchanges in which buyers and sellers trade stocks on an exchange and go through a clearing house to transfer ownership and assure transaction.


== What’s the problem you are solving? ==


The lack of assurance that each party will comply with their end of the HIT creates a large market risk that hinders the trust and growth within the crowdsourced labor market. 



== What else have other people tried? ==


Stock exchanges and online payment merchants such as PayPal have used a clearinghouse system to process payments and hedge market risk for all parties. Through this system, they have allowed for strangers to engage in transactions together without having to vet the other party.


== What’s the high-level insight? ==

In order to ensure a steady growth and hedge market risk, there needs to be a secure way to ensure each party get their desired outcome while working with a stranger. In order for this to happen, a clearinghouse system must be implemented to increase market trust in the Daemo platform and encourage higher frequency of HITs within the ecosystem. This strategy would allow for greater user acquisition of workers who have been “burned” by sketchy requesters who denied payment for rightfully completed work. Paypal’s clearinghouse system has been pivotal in the success of ebay, an online marketplace not all that dissimilar from the crowdsourced labor market. 



== What’s the system? ==


1.	A requester puts in a HIT to the task exchange. 

2.	The exchange finds a suitable worker(s) to complete the task.

3.	The two parties agree to the terms of the HIT through a clearinghouse.

4.	Once the task is completed, the workers deliver their HIT while the requester delivers the payment - both to the clearinghouse.

5.	The clearinghouse takes a percentage of the payment for the service of ensuring an effective transaction.

6.	If the worker does not complete the task, the exchange will find another worker to complete it and the worker suffers a negative reputation.

7.	If the requester does not pay, the clearing house will pay the task fee and the requester will lose the opportunity to continue to post.


[[File:Exchange.jpg|200px]]




== Resources ==

http://futuresfundamentals.cmegroup.com/futures-the-role-of-clearing-houses.html

http://www.investopedia.com/terms/c/clearinghouse.asp

http://www.britannica.com/topic/eBay



== Contributors ==

@atinmittra