IVTS - informal value transfer systems

Abstract

Hawala, and other informal value transfer systems, have been in the news with greater frequency during the last couple of years, often in alleged connection with terrorist funding, money laundering or some other criminal activity. Despite this negative publicity and association, especially after September 11th 2001, informal value transfer systems remain an economic phenomenon. This thesis focuses on their economic contexts and mechanisms, which seem to be, on many accounts, widely misunderstood.

The thesis explores and discusses why informal value transfer systems work. The thesis uses game theory to give an explanation as to why IVTS work. The main result of the thesis is that, in the presence of optimizing costs, the "Tit-for-Tat" types will survive in competition with the rational actors, conditioned on the number of rounds in the Prisoners' Dilemma game being sufficiently large.