Identity Theft

Identity theft is made possible by the nature of modern payment systems. In the modern economy, sellers are willing to offer goods and services to strangers in exchange for a promise to pay, provided the promise is backed up by data that link the buyer to a specific account or credit history. Identity theft involves acquiring enough data about another person to counterfeit this link, enabling the thief to acquire goods while attributing the charge to another person's account. In this article, we discuss what is (and is not) known about the prevalence and cost of identity theft, describe the institutional framework in which identity theft takes place, and consider some of the main policy issues associated with the problem.