Monday, December 07, 2009

The Benefits of Identity Theft

Here's a bit from CNN on the "hidden costs of identity theft." It got me to thinking-- if we do a cost-benefit calculation, are we overstating or understating the costs? I think it's the latter.

Let's go through the costs. The individuals in the story had a particularly rough go of it-- credit cards, cars and even houses all against their once good name. Any direct fiduciary responsibility that trickled back to the couple and any losses due to compromising credit scores are certainly costs born the victims. The point of the story is that there's an emotional side to the matter as well-- indeed, that's a also a cost.

I'd imagine the couple is probably taking some proactive action to prevent any further harm. This, also, is a cost of identity theft-- think about a business that has to spend money on doors and locks at the warehouse. Those are resources that can't move into the productive process-- ergo, more costs. A wide range of people incur this cost due to the possibility of identity theft-- you don't need to be a victim to feel this one.

Online companies know that potential customers are concerning with the security of their websites; they go to great length to emphasize the safety of the shopping experience. My question is this: Could it be possible that the preemptive security measures taken by online companies get more people to shop online than if the entire identity theft issue had ever come up?

It seems a bit foolish to write that just now, but let's consider the following: There exists Option A, something you've never heard of, or even if you have, you haven't considered it seriously but would nonetheless enjoy. There exists a similar Option B, something you also haven't heard of or hadn't seriously considered but would still enjoy, but suddenly you hear that not only has Option B once had problems, there have been significant strides to mitigate the problem. Wouldn't that seem-- rightly or wrongly-- to take some of the risk out of Option B? I think you could make the argument that Option B might, all said and done, see a bit more activity due to the problem and its solution. And that effect, whatever its size, has to be viewed as a benefit of identity theft.

So it's my thought that we're overstating the impact here. I'm curious if anyone else has a take on the issue.

1 comment:

Justin M Ross said...

Levitt had something similar on this a while back: