 Credit and Identity TheftCharles Kahn and William Roberds No 34, 2006 Meeting Papers from Society for Economic Dynamics Abstract: The quintessential crime of the information age is identity theft, the malicious use of personal identifying data. In this paper we provide a model of “identity†and its use in credit transactions. In the environments we construct, various types of identity theft occur in equilibrium, including “new account fraud,†“existing account fraud,†and “friendly fraud.†In the model, the equilibrium incidence of identity theft arises from a tradeoff between a desire to avoid costly or invasive monitoring of individuals on the one hand, and the need to control transactions fraud on the other. Our results suggest that technological advances will not eliminate this tradeoff. Section 2 of the paper makes use of the search-theoretic model developed in Kahn, McAndrews, and Roberds (2005). It illustrates how identity theft is a consequence of information-sharing among sellers, via instruments that amount to artificial “quasi-identities,†e.g., credit cards. While such information-sharing reduces the cost and equilibrium incidence of transactions fraud, it can also facilitate the propagation of fraud across different sellers, i.e., what is commonly known as identity theft. Nonetheless, as the costs of information sharing fall, such arrangements will generally dominate. Section 3 considers two offshoots of the basic model. In the first variation, money is introduced as a sort of card that is not tied to anyone’s identity. Under suitable conditions, the simultaneous use of money and credit can improve welfare relative to the use of credit alone. This occurs because money allows for transactions to occur where identity verification would be too costly. The second variation allows for the possibility of “friendly fraud†(fraudulently claiming fraud) and shows how information-sharing arrangements can be robust to this type of fraud risk. In sum, this paper illustrates how identity theft and related types of transactions fraud may be incorporated into modern theories of money and credit. Our methodology for investigating identity theft is a general one, whose application is not necessarily tied to any single approach. Keywords: Identity theft; fraud; money; credit (search for similar items in EconPapers) There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:red:sed006:34 Access Statistics for this paper More papers in 2006 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC. |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.