Fraud and Poverty: Exploring Ex Ante Victim Data

Authors: Yoshito Takasaki
Publication:  Working Paper
Year: 2011

Relevance: By focusing on a defrauded group still unaware of their victimization (ex ante victim data), the author suggests an alternative method of study, as well as a new perspective on fraud in poor and developing countries.

Summary: Most surveys studying fraud and its impact ask victims directly if they have been defrauded.This paper collected data before attempted victims were aware of the fraudulence.

  • The fraud type studied was recruitment fraud in rural Fiji, targeting all working
    age men in 43 villages (1,247 total, aged 18-60).
  • Individuals were instructed to provide F$230 (F$1 = US$.60) for the phony “application” for labor migration approval. 
  • The average victimized household lost about F$242 – nearly the mean monthly
    per-capita income.
  • Total losses reached over F$350,000. (p. 11)

The author highlights that a standard survey study, such as the International Crime Victims Survey (ICVS) would not have revealed the incidence of this fraud.

“Fraud studies rely on potentially underreported/misreported victim data” (p. 23).

For this reason, the author urges further use of ‘ex ante victim data,’ and proposes additional research questions to be explored:

  1. How can the attempted victims’ decisions be dissected?
  2. What policies can effectively prevent victimization?
  3. How broadly, seriously, and persistently do fraud and fraud victimization affect peoples’ behaviors and welfare, before and after they become aware of the fraudulence?
  4. Does fraud cause poverty traps? (p. 24)

Author Abstract: Fraud studies rely on potentially underreported/misreported victim data in developed countries, virtually ignoring developing countries. This paper proposes using ex ante victim data, to be collected before attempted victims become aware of the fraudulence, and examines recruitment fraud, which is tightly linked with poverty. In rural Fiji, almost one quarter of households were defrauded of application fees for labor migration. The bigger problem is indirect costs: Controlling for victim endogeneity reveals that households’ false expectations about international remittances led to a significant reduction in the domestic private transfers victims received. The analysis sharply identifies who was victimized and why/why not.

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