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Network Security and Contagion

Author

Listed:
  • Daron Acemoglu
  • Azarakhsh Malekian
  • Asuman E. Ozdaglar

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. The general presumption in the literature, based on intuitive arguments or analysis of symmetric networks, is that because security investments create positive externalities on other agents, there will be underinvestment in security. We show that this reasoning is incomplete because of a first-order economic force: security investments are also strategic substitutes. In a general (non-symmetric) network, this implies that underinvestment by some agents will encourage overinvestment by others. We demonstrate by means of examples that there can be overinvestment by some agents and also that aggregate probabilities of infection can be lower in equilibrium compared to the social optimum. We then provide sufficient conditions for underinvestment. This requires both sufficiently convex cost functions (convexity alone is not enough) and networks that are either symmetric or locally tree-like. We also characterize the impact of network structure on equilibrium and optimal investments. Finally, we show that 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), there is an additional incentive for overinvestment: greater investment by an agent shifts the attack to other parts of the network.
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Suggested Citation

  • Daron Acemoglu & Azarakhsh Malekian & Asuman E. Ozdaglar, 2013. "Network Security and Contagion," Levine's Working Paper Archive 786969000000000797, David K. Levine.
  • Handle: RePEc:cla:levarc:786969000000000797
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. 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.
    2. repec:eee:gamebe:v:105:y:2017:i:c:p:255-275 is not listed on IDEAS
    3. Acemoglu, Daron & Makhdoumi, Ali & Malekian, Azarakhsh & Ozdaglar, Asuman, 2017. "Privacy-constrained network formation," Games and Economic Behavior, Elsevier, vol. 105(C), pages 255-275.
    4. Allouch, Nizar, 2017. "The cost of segregation in (social) networks," Games and Economic Behavior, Elsevier, vol. 106(C), pages 329-342.
    5. Jeanne, Olivier, 2013. "Macroprudential policies in a global perspective," Proceedings, Federal Reserve Bank of San Francisco, issue Nov, pages 1-38.
    6. Diego Cerdeiro & Marcin Dziubinski & Sanjeev Goyal, 2015. "Contagion Risk and Network Design," Working Papers 2015.56, Fondazione Eni Enrico Mattei.
    7. Cerdeiro, Diego A., 2017. "Contagion exposure and protection technology," Games and Economic Behavior, Elsevier, vol. 105(C), pages 230-254.
    8. 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.
    9. Jeanne, O. & Korinek, A., 2014. "Macroprudential policy beyond banking regulation," Financial Stability Review, Banque de France, issue 18, pages 163-172, April.
    10. Bastiaan Overvest & Bas Straathof, 2015. "What drives cybercrime? Empirical evidence from DDoS attacks," CPB Discussion Paper 306, CPB Netherlands Bureau for Economic Policy Analysis.
    11. Lam, Wing Man Wynne, 2016. "Attack-prevention and damage-control investments in cybersecurity," Information Economics and Policy, Elsevier, vol. 37(C), pages 42-51.
    12. Nizar Allouch & Maia King, 2018. "Constrained public goods in networks," Studies in Economics 1806, School of Economics, University of Kent.
    13. repec:eee:jetheo:v:170:y:2017:i:c:p:182-226 is not listed on IDEAS

    More about this item

    JEL classification:

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

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