The crucial role of financial intermediaries for facilitating trade among strangers

Edward Peter Stringham and J. R. Clark ()
Additional contact information
Edward Peter Stringham: Davis Professor of Economic Organizations and Innovation
J. R. Clark: The University of Tennessee at Chattanooga, Probasco Distinguished Chair of Free Enterprise

The Review of Austrian Economics, 2020, vol. 33, issue 3, No 4, 349-361

Abstract: Abstract How are markets possible under conditions of anonymity and lack of repeat dealing? Many scholars consider the problem of fraud as one that must be dealt with by law, but electronic commerce firms treat the problem of online fraud as a business problem, a problem of risk management. This article documents how merchants and financial intermediaries treat fraud as a cost that can be quantified and then minimized. Just as entrepreneurs earn profits by helping meet a previously unmet market demand, entrepreneurs earn profits by helping reduce what could have been considered an unsolved legal problem. Firms have profited by using predictive analytics and various if-then algorithms to help mitigate what might otherwise be an intractable problem and help vastly expand the scope of commerce.

Keywords: Innovation; Fraud prevention; Payment processing; Credit cards; Predictive analytics; Blockchain; Smart contracts (search for similar items in EconPapers)
JEL-codes: G28 L26 N20 P17 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://link.springer.com/10.1007/s11138-018-0429-0 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:revaec:v:33:y:2020:i:3:d:10.1007_s11138-018-0429-0

Ordering information: This journal article can be ordered from
http://www.springer. ... ce/journal/11138/PS2

DOI: 10.1007/s11138-018-0429-0

Access Statistics for this article

The Review of Austrian Economics is currently edited by Peter Boettke and Christopher Coyne

More articles in The Review of Austrian Economics from Springer, Society for the Development of Austrian Economics Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().