An institutional analysis of the economics of identity

This thesis develops a new institutional economics of identity. It develops a clear and consistent economic definition of identity, and demonstrates the ways identity overcomes information problems in economic and political exchange. The first contribution of this thesis is a clear and consistent economic definition of identity (Chapter 1). Here, identity is a vector of characteristics associated with a unique individual that allows other individuals to recognise them, or allow differentiation from other individuals. As goods are vectors of characteristics, this thesis introduces individuals as being vectors of characteristics. These identity characteristics are classified as being innate to, prescribed by, and prescribed to, the individual. This is in stark contrast to many previous conceptions of identity in economics and the broader social sciences, which have typically studied identity as a single characteristic (Chapter 2). This single characteristic is also often defined as a group characteristic, which ignores the individual and differentiating characteristics of economic and political agents. The next contribution of this thesis is to clearly demonstrate the way identity can be characterised as overcoming uncertainty and mitigating instances of information asymmetry in economic exchange. In contrast to mainstream economics, this thesis treats the identity of the buyer and seller as an important part of economic exchange. That is, populations are heterogeneous, owing to the varied endowments, tastes and motivations of individuals. This leads to information problems, as due to this heterogeneity of economic and political actors, behavioural and contractual outcomes are difficult to predict. To overcome this information asymmetry, economic actors both demand and supply identity information. The demand of identity is a positive function of the need to recognise, and distinguish between, trading partners. Lenders will demand information related to an individual¿s ability to service a loan, for instance. Obtaining this identity information is costly and results in what I term `identity costs¿, which I introduce as a distinct subset of transaction costs (Chapter 3). This model I develop uses the transaction cost framework of uncertainty, frequency of exchange, and asset specificity. The identity cost model of exchange demonstrates the mechanism by which economic actors produce predictability about the future state of the world. In addition, the supply of identity information can overcome this behavioural and contractual uncertainty. The supply of identity is a function of the need to differentiate oneself from potential competitors when seeking out trading partners. As I develop with a hostage model of identity (Chapter 4), constraints can be placed on human behaviour in the form of credible commitments. This model contributes an extension of the hostage model of exchange. I show how in the presence of information asymmetry economic actors can place an identity asset at risk¿`identity at risk¿¿as a prerequisite to entering some exchange. In this expanded hostage model of exchange, economic actors supply identity information because it is beneficial to do so. They supply this identity information via the posting of identity hostages which consist of information assets that are exploitable in the event of non-compliance with contractual terms. The next contribution of this thesis is the demonstration of the transaction cost economising nature of identity. I have already mentioned the introduction of identity costs as my contribution to the transaction costs literature. I then extend this finding to determine that, as identity costs are a significant cost in some industries, the existence of certain hierarchical organisations can be attributed to identity cost economising (Chapter 3). For instance, banks exist as an aggregation of lenders who benefit from economies of scale in determining their borrowers¿ willingness and ability to repay loans. The final contribution of this thesis is to demonstrate how identity can be characterised as being used by individuals and states to access economic rents and other privileges. Another way of stating this is that I examine identity as it is used to overcome uncertainty in political exchange. Here I contribute an understanding of the demand and supply of identity as it relates to the political sphere. I first examine uncertainty as it relates to sovereign risk, where sovereign risk results in the nationalisation of private property. I develop an intergenerational model of property ownership, which sees buyers manufacture certainty through the private supply of identity information in the form of heritable surnames (Chapter 5). Property owners suffer from an information problem related to a sovereigns¿ intention to expropriate land. In the context of Norman England post-1066, I examine heritable surnames as an identity institution used as a measure of protection against state action. In addition, I also use the property rights literature to characterise this process. I next contribute an expanded stationary bandit model of government to illustrate how a state can satisfy its own demand for identity (Chapter 6). Here, states have an asymmetry of information as to the nature of their citizens, owing to their heterogeneity, and their differing value in terms of extractable resources. They use identity technologies to increase their legibility over their populations, and to increase their extractive capacity. States also use identity technologies to discriminatorily supply public goods. The model developed in this chapter is then illustrated via case studies of Ancient Rome, early Medieval Europe, revolutionary France, and Communist China.