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Network security and contagion

Author

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  • Acemoglu, Daron
  • Malekian, Azarakhsh
  • Ozdaglar, Asu

Abstract

We develop a theoretical model of security investments in a network of interconnected agents. Network connections introduce the possibility of cascading failures due to an exogenous or endogenous attack depending on the profile of security investments by the agents. We provide a tractable decomposition of individual payoffs into an own effect and an externality, which also enables us to characterize individual investment incentives recursively (by considering the network with one agent removed at a time). Using this decomposition, we provide characterization of equilibrium and socially optimal investment levels as a function of the structure of the network, highlighting the role of a new set of network centrality measures in shaping the levels of equilibrium and optimal investments. When the attack location is endogenized (by assuming that the attacker chooses a probability distribution over the location of the attack in order to maximize damage), similar forces still operate, but now because greater investment by an agent shifts the attack to other parts of the network, the equilibrium may involve too much investment relative to the social optimum.

Suggested Citation

  • Acemoglu, Daron & Malekian, Azarakhsh & Ozdaglar, Asu, 2016. "Network security and contagion," Journal of Economic Theory, Elsevier, vol. 166(C), pages 536-585.
  • Handle: RePEc:eee:jetheo:v:166:y:2016:i:c:p:536-585
    DOI: 10.1016/j.jet.2016.09.009
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    Citations

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    Cited by:

    1. Bravard, Christophe & Charroin, Liza & Touati, Corinne, 2017. "Optimal design and defense of networks under link attacks," Journal of Mathematical Economics, Elsevier, vol. 68(C), pages 62-79.
    2. Cerdeiro, Diego A., 2017. "Contagion exposure and protection technology," Games and Economic Behavior, Elsevier, vol. 105(C), pages 230-254.
    3. Diego Cerdeiro & Marcin Dziubinski & Sanjeev Goyal, 2015. "Contagion Risk and Network Design," Working Papers 2015.56, Fondazione Eni Enrico Mattei.
    4. repec:eee:mateco:v:79:y:2018:i:c:p:57-64 is not listed on IDEAS
    5. Allouch, Nizar, 2017. "The cost of segregation in (social) networks," Games and Economic Behavior, Elsevier, vol. 106(C), pages 329-342.
    6. Jeanne, Olivier, 2013. "Macroprudential policies in a global perspective," Proceedings, Federal Reserve Bank of San Francisco, issue Nov, pages 1-38.
    7. Nizar Allouch & Maia King, 2018. "Constrained public goods in networks," Studies in Economics 1806, School of Economics, University of Kent.
    8. repec:jfr:ijfr11:v:9:y:2018:i:4:p:43-50 is not listed on IDEAS
    9. Dan Kovenock & Brian Roberson, 2018. "The Optimal Defense Of Networks Of Targets," Economic Inquiry, Western Economic Association International, vol. 56(4), pages 2195-2211, October.
    10. Jeanne, O. & Korinek, A., 2014. "Macroprudential policy beyond banking regulation," Financial Stability Review, Banque de France, issue 18, pages 163-172, April.
    11. Belhaj, Mohamed & Deroïan, Frédéric, 2018. "Targeting the key player: An incentive-based approach," Journal of Mathematical Economics, Elsevier, vol. 79(C), pages 57-64.
    12. Lam, Wing Man Wynne, 2016. "Attack-prevention and damage-control investments in cybersecurity," Information Economics and Policy, Elsevier, vol. 37(C), pages 42-51.
    13. Dror Y. Kenett & Sary Levy-Carciente & Adam Avakian & H. Eugene Stanley & Shlomo Havlin, 2015. "Dynamical Macroprudential Stress Testing Using Network Theory," Working Papers 15-12, Office of Financial Research, US Department of the Treasury.
    14. Acemoglu, Daron & Makhdoumi, Ali & Malekian, Azarakhsh & Ozdaglar, Asuman, 2017. "Privacy-constrained network formation," Games and Economic Behavior, Elsevier, vol. 105(C), pages 255-275.
    15. Bastiaan Overvest & Bas Straathof, 2015. "What drives cybercrime? Empirical evidence from DDoS attacks," CPB Discussion Paper 306, CPB Netherlands Bureau for Economic Policy Analysis.
    16. repec:eee:jetheo:v:170:y:2017:i:c:p:182-226 is not listed on IDEAS

    More about this item

    Keywords

    Cascades; Contagion; Network security; Security investments; Network centrality;

    JEL classification:

    • D6 - Microeconomics - - Welfare Economics
    • D62 - Microeconomics - - Welfare Economics - - - Externalities

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