The Capability of Government in Providing Protection Against Online Fraud

Abstract

Online merchants are exposed to serious threats of fraud, which has the potential to cripple electronic commerce. Classical liberals such as Epstein and North believe that markets require prohibitions against fraud and that government can solve the problem. Although the classical-liberal solution seems clear, how it will be implemented is less clear. For government to prohibit online fraud a number of conditions must be met. By compiling evidence from government testimonies and interviews in Silicon Valley, this article studies the extent to which government can provide protections against online fraud. It finds a number of obstacles that inhibit government from enforcing laws against online fraud. Technology moves at a rapid pace and government often lacks the capability to identify those who commit fraud. In addition, questions remain about how domestic law enforcement can enforce laws against fraud around the globe. Even if domestic law enforcement had the ability to identify fraudsters, it would need to rely on law enforcement agencies from around the globe to help enforce the laws. Under these conditions the ability for government to prohibit fraud is extremely limited. Classical liberals appear to be guilty of the Nirvana Fallacy.