Understanding the Economics of Electronic Identity: Theoretical Approaches and Case Studies

This paper discusses the economics of electronic identity (eIdentity) from both theoretical and practical perspectives. Personal identity data are becoming increasingly important in online transactions, and they have never been monetised to the extent they are today. Consequently, there is a need for an improved understanding of the economic externalities resulting from the electronic use of identities in transactions. In this context, we distinguish four main theoretical approaches for understanding economics of identity: identity as a consumption good, identity as a capital asset, identity as a social good, and identity as a cost. We analyse each of these approaches in terms of their benefits to understanding economics of identity, their drawbacks, and the bearer of the cost of identity provision. After the theoretical part, we go on to discuss three case studies, BBS, eBay and IdenTrust, and apply an appropriate concept of economics of identity to analyse each business case. Finally, we conclude the paper by discussing the implications that each of the different concepts of economics of identity has for policymakers.