The potential for underinvestment in internet security: implications for regulatory policy
AbstractWith the continuing growth of the use of the Internet for business purposes, the consequences of a possible cyber attack that could create a large scale outage of long time duration becomes a more and more serious economic issue. In this paper, we construct a game-theoretic model that addresses the economic motivations for investment in added Internet security and makes a case for a possible market failure in the form of underinvestment in the provision of Internet security. This result relies on the fact that the social value derived from consumption (which is at least equal to a fraction of the surplus derived from e-commerce) greatly exceeds the revenue at stake associated with the telecommunications companies’ and ISP’s security levels. If the ratio of social value to revenue at stake to Internet providers continues to grow, the likelihood of underinvestment in security becomes higher and some form of regulation may become necessary. We discuss the difficulties associated with designing and enforcing a regulatory scheme based upon mandatory security standards. Copyright Springer Science+Business Media, LLC 2007
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Springer in its journal Journal of Regulatory Economics.
Volume (Year): 31 (2007)
Issue (Month): 1 (February)
Contact details of provider:
Web page: http://www.springerlink.com/link.asp?id=100298
Internet Security; Market Failure; Game Theory; Nash Equilibrium; Markov perfect equilibrium; L51; L86; C72; C73; K23;
Find related papers by JEL classification:
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
- L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Shapiro, Carl, 1983. "Premiums for High Quality Products as Returns to Reputations," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 98(4), pages 659-79, November.
- Giovannetti, E., 2000.
"Perpetual Leapfrogging in Bertrand Duopoly,"
Cambridge Working Papers in Economics
0012, Faculty of Economics, University of Cambridge.
- Esther Gal-Or & Anindya Ghose, 2005. "The Economic Incentives for Sharing Security Information," Industrial Organization, EconWPA 0503004, EconWPA.
- Martin Cave & Robin Mason, 2001. "The Economics of the Internet: Infrastructure and Regulation," Oxford Review of Economic Policy, Oxford University Press, vol. 17(2), pages 188-201, Summer.
- Liao, Chun-Hsiung & Chen, Chun-Wei, 2014. "Network externality and incentive to invest in network security," Economic Modelling, Elsevier, vol. 36(C), pages 398-404.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn) or (Christopher F. Baum).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.