IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/10706.html
   My bibliography  Save this paper

Interdependent Security: A General Model

Author

Listed:
  • Geoffrey Heal
  • Howard Kunreuther

Abstract

In an interdependent world the risks faced by any one agent depend not only on its choices but also on those of all others. Expectations about others' choices will influence investments in risk-management, and the outcome can be sub-optimal investment all round. We model this as the Nash equilibrium of a game and give conditions for such a sub-optimal equilibrium to be tipped to an optimal one. We also characterize the smallest coalition to tip an equilibrium, the minimum critical coalition, and show that this is also the cheapest critical coalition, so that there is no less expensive way to move the system from the sub- optimal to the optimal equilibrium. We illustrate these results by reference to airline security, the control of infectious diseases via vaccination and investment in research and development.

Suggested Citation

  • Geoffrey Heal & Howard Kunreuther, 2004. "Interdependent Security: A General Model," NBER Working Papers 10706, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:10706
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w10706.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Partha Dasgupta & Joseph Stiglitz, 1980. "Uncertainty, Industrial Structure, and the Speed of R&D," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 1-28, Spring.
    2. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
    3. Dasgupta, Partha & Stiglitz, Joseph, 1981. "Resource Depletion under Technological Uncertainty," Econometrica, Econometric Society, vol. 49(1), pages 85-104, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Vicki Bier & Santiago Oliveros & Larry Samuelson, 2007. "Choosing What to Protect: Strategic Defensive Allocation against an Unknown Attacker," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 9(4), pages 563-587, August.
    2. Marcin Dziubinski & Sanjeev Goyal & Adrien Vigier, 2015. "Conflict and Networks," Cambridge Working Papers in Economics 1565, Faculty of Economics, University of Cambridge.
    3. Marcin Dziubinski & Sanjeev Goyal, 2014. "How to Defend a Network?," Cambridge Working Papers in Economics 1450, Faculty of Economics, University of Cambridge.
    4. Bernhardt, Dan & Polborn, Mattias K., 2010. "Non-convexities and the gains from concealing defenses from committed terrorists," Economics Letters, Elsevier, vol. 107(1), pages 52-54, April.
    5. Shafran, Aric P., 2008. "Risk externalities and the problem of wildfire risk," Journal of Urban Economics, Elsevier, vol. 64(2), pages 488-495, September.
    6. Annette Hofmann, 2007. "Internalizing externalities of loss prevention through insurance monopoly: an analysis of interdependent risks," The Geneva Papers on Risk and Insurance Theory, Springer;International Association for the Study of Insurance Economics (The Geneva Association), vol. 32(1), pages 91-111, June.
    7. DziubiƄski, Marcin Konrad & Goyal, Sanjeev, 2017. "How do you defend a network?," Theoretical Economics, Econometric Society, vol. 12(1), January.
    8. Marco Pelliccia, 2015. "Decentralised Defence of a (Directed) Network Structure," Birkbeck Working Papers in Economics and Finance 1506, Birkbeck, Department of Economics, Mathematics & Statistics.

    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:10706. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: () or (Joanne Lustig). General contact details of provider: http://edirc.repec.org/data/nberrus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.