Measuring and Integrating the Shadow Economy

Architecture and Background

DEF CON 16 - Brian K. Edwards & Silvio J. Flaim: Measuring and Integrating the Shadow Economy: A Sector-Specific Approach Much literature has addressed the issue of the relative sizes of shadow economies in different countries. What is largely missing from this discussion is a more structured discussion on how to incorporate estimates of shadow economic activity into the national income accounting framework and a discussion of how the shadow components of specific industries can be analyzed in either an input-output or macroeconomic framework.

Vulnerability Analysis

After a brief discussion of existing estimates of black market activity, we discuss how black market activities might be measured and incorporated in standard economic models of the economy. We then focus particular attention on the malware industry and discuss how malware activity influences other economic activity (both official and shadow) and discuss possible methods of how malware activity can be estimated, and how the contribution of malware to overall economic activity can be measured. Finally, we discuss how the methods used to integrate malware economic activity into the national income accounts can be applied to other sectors of the economy, and hence how to develop an alternative measure of the size of the shadow economy. With a new baseline incorporating these "shadow" activities, the economic model is used to examine questions such as: What is the net economic contribution of malware and other shadow economic activity?

Exploitation and Demonstrations

What would be economic impact of eliminating malware and other shadow activity in all its forms? Brian K. Edwards received his Ph.D. in economics from the University of California, San Diego, in 1984 and has over twenty years of experience in economic modeling, econometrics, macroeconomic and regional economic modeling, forecasting, and in energy, environmental, and natural resource economics.

Remediation and Defensive Strategies

He has published numerous reports, academic publications, and recently authored a book The Economics of Hydroelectric Power (2003). He is currently the Team Lead of the Socio-Economics Network Team of the Decision Analysis Division of Los Alamos National Laboratory. He has also economist positions at the National Marine Fisheries Service, U.S. Government Accountability Office, Argonne National Laboratory, LECG, and RCF Economic and Financial Consulting. He also has a private consulting practice, Brian K. Edwards Associates. For copies of the slides and additional materials please see the DEF CON 16 Archive here: