Editing Arbitration DAO (section)

=== Arbitration tax ===
Given the arguments in the previous paragraph, the typical [[DAO#Primary DAOs|primary DAO]] will pay for arbitration by including a tax in each WSC, which acts like insurance, giving everyone who uses the WSC the right to trigger the arbitration clause. This tax can be collected in a [[treasury]] which is tapped each time an arbitration clause is triggered. Each time the treasury is tapped the money is sent to the arbWSC as a fee, after which [[Arbitration DAO#arbDAO workflow|arbDAO workflow]] is followed. 

The size of the tax will depend on the DAO and changing market conditions. Given the fact that the tax gives 0 transaction cost for inititating arbitration, if frivolous claims are not policed, the arbDAO will be expensive and ineffective. The more effective the arbDAO is, the less it will be used, and the lower the tax will be. Therefore arbitrators get more money and work if they do a worse job. This effect encourages the legal system to be ineffective and costly, explaining one type of institutional creep which is universally experienced in pure governmental bureaucracies. However, an arbDAO has different incentives than pure governmental bureaucratic institutions given the market price negotiations that occur between DAO and arbDAO, because there is a choice of different arbDAOs available (since arbDAOs can be cloned easily).