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The Economics of Counterfeiting

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  • Elena Quercioli
  • Lones Smith

Abstract

We develop a strategic theory of counterfeiting as a multi‐market large game. Bad guys choose whether to counterfeit, and what quality to produce. Opposing them is a continuum of good guys who select a costly verification effort. In equilibrium, counterfeiters produce better quality at higher notes, but verifiers try sufficiently harder that verification still improves. We develop a graphical framework for deducing comparative statics. Passed and counterfeiting rates vanish for low and high notes. Our predictions are consistent with time series and cross‐sectional patterns in a unique data set assembled largely from the Secret Service.

Suggested Citation

  • Elena Quercioli & Lones Smith, 2015. "The Economics of Counterfeiting," Econometrica, Econometric Society, vol. 83(3), pages 1211-1236, May.
    • Handle: RePEc:wly:emetrp:v:83:y:2015:i:3:p:1211-1236
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    Cited by:

    1. Charles M. Kahn & Francisco Rivadeneyra & Tsz-Nga Wong, 2018. "Should the Central Bank Issue E-money?," Staff Working Papers 18-58, Bank of Canada.
    2. Hull, Isaiah & Sattath, Or, 2021. "Revisiting the Properties of Money," Working Paper Series 406, Sveriges Riksbank (Central Bank of Sweden).
    3. Kang, Kee-Youn, 2017. "Counterfeiting, screening and government policy," Journal of Economic Theory, Elsevier, vol. 172(C), pages 26-54.
    4. Shao, Enchuan & Fung, Ben S.C., 2016. "Counterfeit quality and verification in a monetary exchange," Economic Modelling, Elsevier, vol. 52(PA), pages 13-25.
    5. Gonzalo Cisternas & Jorge Vásquez, 2022. "Misinformation in Social Media: The Role of Verification Incentives," Staff Reports 1028, Federal Reserve Bank of New York.
    6. Hedlund, Jonas & Hernandez-Chanto, Allan & Oyarzun, Carlos, 2024. "Contagion management through information disclosure," Journal of Economic Theory, Elsevier, vol. 218(C).
    7. Choi, Michael, 2018. "Imperfect information transmission and adverse selection in asset markets," Journal of Economic Theory, Elsevier, vol. 176(C), pages 619-649.

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