The Federal Reserve Board published a research paper by Gadi Barlevy and Ines Xavier that develops a model of Ponzi schemes under asymmetric information, focusing on when Ponzi fraud can arise and what types of interventions can stop it. The model features a long-lived agent who offers to save on behalf of short-lived agents at a higher return than they can obtain themselves, where the agent may either have a genuinely superior savings technology or be an imposter seeking to steal funds. A central mechanism is reputation building over time, with the scheme sustained as the long-lived agent maintains trust by keeping the operation going.
Federal Reserve Board 2025-03-25
Federal Reserve Board publishes model identifying when Ponzi frauds can occur and which interventions can prevent them
The Federal Reserve Board released a research paper by Gadi Barlevy and Ines Xavier modeling Ponzi schemes under asymmetric information. The study examines conditions under which Ponzi fraud can occur and potential interventions to prevent it, highlighting the role of reputation building by long-lived agents offering high returns to short-lived agents.