Security investment and information sharing under an alternative security breach probability function

Nowadays, in order to protect information assets, many firms have gradually realized the importance of security investment and information sharing. It is worth pointing out that security breach probability functions play a vital role in firms’ strategic choices. This paper investigates how to determine security investment and information sharing for two firms by employing an alternative well-accepted security breach probability function. In particular, assuming that both firms make their decisions individually, we analyze information sharing, aggregate attack, aggregate defense and the security breach probability at equilibrium. Then we compare these results with those in three (partially) centralized decision cases where a social planner regulates security investment, information sharing or both of them. Between the individual decision case and the partially centralized decision case with the social planner only controlling information sharing, and between the centralized decision case and the other partially centralized decision case, we demonstrate that, although aggregate attack, aggregate defense and the security breach probability remain unchanged, more intervention from the social planner would give rise to higher social welfare. Besides, it turns out that some well-known results of Hausken (Journal of Accounting and Public Policy, 26(6), 639–688, 2007) drastically change in our framework.