Wednesday, April 9, 2008

Stolen Credit Cards and Economics

Maybe you have had your credit card number stolen and the thieves purchased computer equipment, electronics, or gasoline. With all the reports of stolen credit card numbers it is unlikely that anyone hacker who steals you number is going to use it, but instead that hacker is likely to resell that information.

So what is your credit card information worth? About 40 cents. At least according to the market place story I heard last night, criminals can purchase credit card numbers for a mere .40 cents. So what determines price, marketplace says supply and demand. I think that is true but a little more accurate would be for demand.

Demand: Willingness to pay for credit card = expected payoff of credit card – opportunity cost of using credit card – negative value of expected jail time for using credit card.

Banks are getting better at stopping fraudulent use of credit cards so the expected payoff is going down. The time it takes to use a stolen credit card is about the same (just order something or buy something).

Supply: Willingness to supply (least hacker would sell info for) = time to steal + negative value of expected jail time for using credit card.

Jail time is a factor, but it is also important how likely are people to be caught.

I think I'll keep my credit card number to myself though.

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