Negligence and sanctions in information security investments in a cloud environment

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.