identify theft losses compared to fire property losses

Identity theft is a major problem.  Among U.S. households, 6.6% had at least one member who was a victim of identity theft in 2007. These identity theft victims reported $14.6 billion in financial losses. For comparison, total direct property losses from criminal and accidental fires in buildings amounted to $10.6 billion in 2007.[1] Hence financial losses from identity theft were 38% greater than financial losses from structural fires.

Public spending on identity theft protection is much less than public spending on fire protection.  In the U.S., the main government agency that specifically addresses identity theft is the Federal Trade Commission (FTC). The total FTC budget for consumer protection in 2009 was $148 million.[2]  Law enforcement agencies also address identity theft.  Total spending on state and local police protection was $84 billion in 2007.  Probably considerably less than 1% of those resources are used to address identity theft. Total public spending on identity theft prevention is probably on the order of $500 million.  For comparison, state and local spending on fire protection amounted to $37 billion.[3] Hence public spending on identity theft prevention probably amounts to only 1% to 2% of public spending on fire protection.

Factors that help explain relatively low protective public spending per dollar of loss from identity theft:

  1. Identity theft is a boring public problem.  Fires make good copy for news reporting.
  2. Identity theft doesn’t cause bodily harm.  Fires caused 3,430 deaths and 17,675 personal injuries in 2007.[4]
  3. Identity theft is a relatively new problem.  Fires almost surely have been causing property losses since humans have been using fire.  Governments have institutionalized fire protection for over a century.

Under current laws, identity theft may be a more public problem than fires.  Identity theft victims don’t directly experience a large share of the financial losses from identity theft. A 2006 U.S. identity theft survey found that 59% of identity theft victims experienced no out of pocket expenses from identity theft.[5]  A large share of identity theft losses are nominally shifted to financial firms and ultimately diffused across the economy. Building insurance policies probably cover a large share of fire losses.  But building owners directly pay for these policies.  The level of insurance premiums relates personal cost to the risk of property loss from fire.  Of course, fires can spread from building to building.  But economies of scale among persons and criminal organizations perpetrating identity theft has a similar effect.

Public information infrastructure can strengthen identity protection.  Law enforcement efforts can reduce identity theft.  Greater public spending on identity protection seems to make sense.

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Notes:

[1] Identity theft losses calculated from U.S. Bureau of Justice Statistics, Identity Theft Reported by Households, 2007 – Statistical Tables, Tables 1, 4.   Fire losses are from U.S. Statistical Abstract 2010, Table 375.

[2] FTC, FY 2010 Congressional Budget Justification Summary, p. 44.

[3] State and local government spending on police and fire protection are from U.S. Census Bureau, State and Local Government Finance, 2007.

[4] See U.S. Statistical Abstract 2010, Table 375.

[5]  Federal Trade Commission, 2006 Identity Theft Survey Report, p. 37, Fig. 13.

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