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The Economic Incentives for Sharing Security Information

Author

Listed:
  • Esther Gal-Or

    (Katz School, University of Pittsburgh)

  • Anindya Ghose

    (Stern School, New York University)

Abstract

Given that Information Technology (IT) security has emerged as an important issue in the last few years, the subject of security information sharing among firms, as a tool to minimize security breaches, has gained the interest of practitioners and academics. To promote the disclosure and sharing of cyber-security information among firms, the US federal government has encouraged the establishment of many industry based Information Sharing & Analysis Centers (ISACs) under Presidential Decision Directive 63. Sharing security vulnerabilities and technological solutions related to methods for preventing, detecting and correcting security breaches, is the fundamental goal of the ISACs. However, there are a number of interesting economic issues that will affect the achievement of this goal. Using game theory, we develop an analytical framework to investigate the competitive implications of sharing security information and investments in security technologies. We find that security technology investments and security information sharing act as ``strategic complements'' in equilibrium. Our results suggest that information sharing is more valuable when product substitutability is higher, implying that such sharing alliances yield greater benefits in more competitive industries. We also highlight that the benefits from such information sharing alliances increase with the size of the firm. We compare the levels of information sharing and technology investments obtained when firms behave independently (Bertrand-Nash) to those selected by an ISAC which maximizes social welfare or joint industry profits. Our results help us predict the consequences of establishing organizations such as ISACs, CERT or InfraGard by the federal government.

Suggested Citation

  • Esther Gal-Or & Anindya Ghose, 2005. "The Economic Incentives for Sharing Security Information," Industrial Organization 0503004, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpio:0503004
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    References listed on IDEAS

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    More about this item

    Keywords

    Technology Investment; Information Sharing; Security Breaches; Externality Benefit; Spillover Effect; Social Welfare;
    All these keywords.

    JEL classification:

    • L - Industrial Organization

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