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Strategic investment in protection in networked systems

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  • LEDUC, MATT V.
  • MOMOT, RUSLAN

Abstract

We study the incentives that agents have to invest in costly protection against cascading failures in networked systems. Applications include vaccination, computer security, and airport security. Agents are connected through a network and can fail either intrinsically or as a result of the failure of a subset of their neighbors. We characterize the equilibrium based on an agent's failure probability and derive conditions under which equilibrium strategies are monotone in degree (i.e. in how connected an agent is on the network). We show that different kinds of applications (e.g. vaccination, malware, airport/EU security) lead to very different equilibrium patterns of investments in protection, with important welfare and risk implications. Our equilibrium concept is flexible enough to allow for comparative statics in terms of network properties, and we show that it is also robust to the introduction of global externalities (e.g. price feedback, congestion).

Suggested Citation

  • Leduc, Matt V. & Momot, Ruslan, 2017. "Strategic investment in protection in networked systems," Network Science, Cambridge University Press, vol. 5(1), pages 108-139, March.
    • Handle: RePEc:cup:netsci:v:5:y:2017:i:01:p:108-139_00
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    Cited by:

    1. Leduc, Matt V. & Jackson, Matthew O. & Johari, Ramesh, 2017. "Pricing and referrals in diffusion on networks," Games and Economic Behavior, Elsevier, vol. 104(C), pages 568-594.

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