The Institutional Economics of Identity

Abstract

Identification forms a key part of all but the least sophisticated economic and political transactions. More complex or significant transactions demand more formal identification of the parties involved. In this paper we develop an institutional as well as a public choice theory of identity. We distinguish between a Demsetzian evolutionary view of identity and a ‘legal-centric’ view of identity. In the former view, identity is contextual, fluid and subjective. In the latter, identity is uniform and permanent. Governments have an interest in identity insofar as identity is used in the process of tax collection and welfare provision (and previously conscription). Private organisations free-ride off state-provided identification services. The paper concludes with a discussion about technological change and identity management. We characterise two possible futures: one in which blockchain and related technology enables states to create more comprehensive uniform identities, and one in which these technologies enable identities to be ‘self-sovereign’ and transferred to citizens.