A Model of Charles Ponzi

Gadi Barlevy and Inês Xavier
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Inês Xavier: https://www.federalreserve.gov/econres/ines-m-xavier.htm

No WP 2025-05, Working Paper Series from Federal Reserve Bank of Chicago

Abstract: We develop a model of Ponzi schemes with asymmetric information to study Ponzi frauds. A long-lived agent offers to save on behalf of short-lived agents at a higher rate than they can earn themselves. The long-lived agent may genuinely have a superior savings technology, but may be an imposter trying to steal from short-lived agents. The model identifies when a Ponzi fraud can occur and what interventions can prevent it. A key feature of Ponzi frauds is that the long-lived agent builds trust over time and improves their reputation by keeping the scheme going.

Keywords: Ponzi scheme; asymmetric information; Reputation; Fraud (search for similar items in EconPapers)
JEL-codes: C73 D82 G51 K42 L14 (search for similar items in EconPapers)
Pages: 58
Date: 2025-03-18
New Economics Papers: this item is included in nep-mic
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Working Paper: A Model of Charles Ponzi (2025)
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DOI: 10.21033/wp-2025-05

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