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White or Black Hat? An Economic Analysis of Computer Hacking

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Abstract

Cyber attacks have increased sharply in recent years. This paper investigates the decision a profit-motivated hacker makes between working as a malicious hacker, called a black hat, and in cybersecurity as a white hat hacker. A key component of the model is the contest between white and black hats for some part of firm output that is vulnerable to attack. White and black hat earnings are increasing, nonlinear functions of the proportion of black hats. Multiple equilibria exist. Increasing the role of law enforcement in both apprehending black hats and the provision of computer security are shown to decrease the proportion of black hats in equilibrium.

Suggested Citation

  • Caitlin Brown, 2015. "White or Black Hat? An Economic Analysis of Computer Hacking," Working Papers gueconwpa~15-15-04, Georgetown University, Department of Economics.
    • Handle: RePEc:geo:guwopa:gueconwpa~15-15-04
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    More about this item

    Keywords

    Computer hacking; cybercrime; information security; crime; multiple equilibria;
    All these keywords.

    JEL classification:

    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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