Credit constraints and fraud victimization: Evidence from a representative Chinese household survey
L.COLIN XU, NAN GAO, YUANYUAN MA, 21 December 2020
Fraud victimization has profound economic and social implications. With the widespread leakage of private information and ever-evolving fraud schemes, people frequently encounter fraud schemes. Millions of people suffer from fraud victimization with enormous economic losses every year. A Federal Trade Commission survey reveals that 15.9 percent of the respondents were victims of fraud in 2017, which represents approximately 40 million U.S. adults. The direct monetary costs incurred by victimization could reach $50 billion (Brenner et al. 2020).
The issue is of greater importance in developing countries. In China, for instance, fraud incidents have grown at an annual rate of 20 to 30 percent in the past decade. According to a report by the Government of China, nearly half of internet users encountered fraud schemes in 2018, and 28 percent of them suffered economic losses. Based on judicial data, fraud is one of the most frequent crimes, accounting for 32 percent of cybercrime, involved 46,000 fraudsters during 2016–18.
The previous literature, mostly in criminology, has examined the behavioral patterns of fraudsters (Levi 2008). Behind the commonly encountered fraud phone calls and emails are well-trained fraudsters in criminal organizations with sophisticated technologies. Those organizations are armed with details about potential victims and “scripts” instructing fraudsters on how to persuade potential victims to buy their stories and make money transfers. However, it remains unclear why fraud victims are victimized. In a recent working paper, we investigate fraud victimization from the perspective of household financial conditions. Specifically, how and why do household credit constraints affect fraud victimization when facing fraud schemes?
