You Only Die Once: Managing Discrete Interdependent Risks
AbstractThis paper extends our earlier analysis of interdependent security issues to a general class of problems involving discrete interdependent risks with heterogeneous agents. There is a threat of an event that can only happen once, and the risk depends on actions taken by others. Any agent's incentive to invest in managing the risk depends on the actions of others. Security problems at airlines and in computer networks come into this category, as do problems of risk management in organizations facing the possibility of bankruptcy, and individuals' choices about whether to be vaccinated against an infectious disease. Surprisingly the framework also covers certain aspects of investment in R&D. Here we characterize Nash equilibria with heterogeneous agents and give conditions for tipping and cascading of equilibria.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9885.
Date of creation: Aug 2003
Date of revision:
Publication status: published as Richardson, H.W., P. Gordon and J.E. Moore II (eds.) The Economic Impacts of Terrorist Attacks. Cheltenham, UK: Edward Elgar, 2005.
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Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
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