We develop a strategic theory of counterfeiting as a multi-market large game. Bad guys choose whether to counterfeit, and what quality to produce. Opposing them is a continuum of good guys who select a costly verification effort. In equilibrium, counterfeiters produce better quality at higher notes, but verifiers try sufficiently harder that verification still improves. We develop a graphical framework for deducing comparative statics. Passed and counterfeiting rates vanish for low and high notes. Our predictions are consistent with time series and cross-sectional patterns in a unique data set assembled largely from the Secret Service
Quercioli, Elena, and Lones Smith. “The Economics of Counterfeiting.” Econometrica 83, no. 3 (June 8, 2015): 1211–36. https://doi.org/10.3982/ECTA10975.
© 2015 The Econometric Society. Original published version available at https://doi.org/10.3982/ECTA10975.