Optimal Public Policy Against Identity Theft

Abstract

Identity theft occurs to 7% of the U.S. population 16 or older annually (17.6 million persons in 2014) and results in costs to those harmed of more than US$15 billion annually. The usual household response (85% of people in 2014) is to take actions to prevent identity theft, ranging from low-cost document shredding and password changes to more costly professional services. These costs are disproportionately borne by the elderly and female population cohorts, raising concerns of equity along with the more traditional efficiency emphasis of economics. Vulnerable households are forced to substantially increase monitoring costs in response to the threat of identity theft, a response that we will show to be both inefficient and inequitable vis-à-vis substituting tougher statutes against identity theft.