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A Network-Economic Policy Study of Identity Management Systems and Implications for Security and Privacy Policy


  • Repkine, Alexandre
  • Hwang, Junseog


Solving the problems associated with identity management in the “virtual” world is proving to be one of the keys to full realization of the economic and social benefits of networked information systems. By definition, the virtual world lacks the rich combination of sensory and contextual cues that permit organizations and individual humans interacting in the physical world to reliably identify people and authorize them to engage in certain transactions or access specific resources. Being able to determine who an online user is and what they are authorized to do thus requires an identity management infrastructure. Some of the most vexing problems associated with the Internet (the deluge of spam, the need to regulate access to certain kinds of content, securing networks from intrusion and disruption, problems of inter-jurisdictional law enforcement related to online activities, impediments to the sharing of distributed computing resources) are fundamentally the problems of identity management. And yet, efforts by organizations and governments to solve those problems by producing and consuming identity systems may create serious risks to freedom and privacy. Thus the implementation and maintenance of identity management systems raises important public policy issues. The identity management systems (the IMS-s) often tend to require more information from the consumers than would otherwise be necessary for the authentication purposes. The typical choice being analyzed in IMS is the one between a completely centralized or integrated system (one ID - one password, and a single sign-on) and the one comprising a plethora of (highly) specialized IMS-s (multiple ID-s and passwords). While the centralized system is the most convenient one, it is also likely to require too much personal information about the users, which may infringe on their rights to privacy and which definitely will result in serious damage should this personal information be stolen and/or abused. When more than two IMS-s interconnect (more of a practical side with various types of commercial values), they share the private information with each other, thus increasing consumers’ exposure to possible information misuse. It is thus rather obvious that the public policy plays an important role to maintain the structure of identity management systems ensuring the existence of a sound balance between the authentication requirements and consumers’ rights to privacy. The focus of this paper is on investigating this type of tradeoff by employing a theoretical framework with agents whose utility depends on the amount of private information revealed, and on making policy recommendations related to the issue of interconnection between alternative IMS-s. Our model derives optimal process of interconnection between IMS-s in the simple case of three IMS-s, then generalizing it to the case of more than three firms. The socially optimal outcome of the interconnection process in our model implies encouraging the interconnection between smaller rather than larger IMS-s.

Suggested Citation

  • Repkine, Alexandre & Hwang, Junseog, 2004. "A Network-Economic Policy Study of Identity Management Systems and Implications for Security and Privacy Policy," MPRA Paper 7850, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:7850

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    References listed on IDEAS

    1. Nicholas Economides, 1997. "The Economics of Networks," Brazilian Electronic Journal of Economics, Department of Economics, Universidade Federal de Pernambuco, vol. 1(0), December.
    2. Olivero, Nadia & Lunt, Peter, 2004. "Privacy versus willingness to disclose in e-commerce exchanges: The effect of risk awareness on the relative role of trust and control," Journal of Economic Psychology, Elsevier, vol. 25(2), pages 243-262, April.
    3. Howard Kunreuther & Geoffrey Heal, 2002. "Interdependent Security: The Case of Identical Agents," NBER Working Papers 8871, National Bureau of Economic Research, Inc.
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    More about this item


    Networks; Interconnection; Identity Management; Regulation Policy;

    JEL classification:

    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation


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