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Negligence and sanctions in information security investments in a cloud environment

Author

Listed:
  • Maurizio Naldi

    (University of Rome Tor Vergata)

  • Marta Flamini

    (Università Telematica Internazionale UNINETTUNO)

  • Giuseppe D’Acquisto

    (University of Rome Tor Vergata)

Abstract

The Learned Hand’s rule, comparing security investments against the expected loss from data breaches, can be used as a simple tool to determine the negligence of the company holding the data. On the other hand, companies may have several incentives to distribute their data over a cloud. In order to analyze the conflict between the sanctioning behavior and the search for economic profit, we employ the well known Gordon-Loeb models, as well as the more recent Huang-Behara models, for the relationship between investments and the probability of money loss due to malicious attacks. In this paper we determine the optimal amount of investments when data are distributed over a cloud and Hand’s rule is applied. We find that the net benefit of investing in security shrinks as the number of repositories making up the cloud grows, till investing becomes non profitable. An implication of our study is that, unless the cloud provider may guarantee a higher security investment productivity, the cloud solution provides a lower net benefit than the centralized one. By the application of Hand’s rule, we show that the company is held negligent if it does not invest just in the case it uses a centralized storage infrastructure or a cloud made of a limited number of repositories: Hand’s rule sanctions the lack of security investments by cloud providers with a limited number of repositories.

Suggested Citation

  • Maurizio Naldi & Marta Flamini & Giuseppe D’Acquisto, 2018. "Negligence and sanctions in information security investments in a cloud environment," Electronic Markets, Springer;IIM University of St. Gallen, vol. 28(1), pages 39-52, February.
  • Handle: RePEc:spr:elmark:v:28:y:2018:i:1:d:10.1007_s12525-017-0276-z
    DOI: 10.1007/s12525-017-0276-z
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    References listed on IDEAS

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    1. Huang, C. Derrick & Behara, Ravi S., 2013. "Economics of information security investment in the case of concurrent heterogeneous attacks with budget constraints," International Journal of Production Economics, Elsevier, vol. 141(1), pages 255-268.
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    Cited by:

    1. Alessandro Mazzoccoli & Maurizio Naldi, 2022. "An Overview of Security Breach Probability Models," Risks, MDPI, vol. 10(11), pages 1-29, November.
    2. Alessandro Mazzoccoli & Maurizio Naldi, 2021. "Optimal Investment in Cyber-Security under Cyber Insurance for a Multi-Branch Firm," Risks, MDPI, vol. 9(1), pages 1-28, January.
    3. Alessandro Mazzoccoli, 2023. "Optimal Cyber Security Investment in a Mixed Risk Management Framework: Examining the Role of Cyber Insurance and Expenditure Analysis," Risks, MDPI, vol. 11(9), pages 1-14, August.
    4. Alessandro Mazzoccoli & Maurizio Naldi, 2020. "Robustness of Optimal Investment Decisions in Mixed Insurance/Investment Cyber Risk Management," Risk Analysis, John Wiley & Sons, vol. 40(3), pages 550-564, March.

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    More about this item

    Keywords

    Security; Privacy; Investments; Cloud; Negligence; Hand’s rule;
    All these keywords.

    JEL classification:

    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • L5 - Industrial Organization - - Regulation and Industrial Policy

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