Outsourcing Strategies for Information Security: Correlated Losses and Security Externalities

Chenglong Zhang, Nan Feng (), Jianjian Chen, Dahui Li and Minqiang Li
Additional contact information
Chenglong Zhang: Tianjin University
Nan Feng: Tianjin University
Jianjian Chen: Tianjin University
Dahui Li: University of Minnesota Duluth
Minqiang Li: Tianjin University

Information Systems Frontiers, 2021, vol. 23, issue 3, No 17, 773-790

Abstract: Abstract Firms in a close business partnership could choose to either outsource to the same or different Managed Security Service Providers (MSSPs) when making outsourcing decisions. Apart from security investments, compensation ratios, and network externalities, the firms in a close business partnership face the new challenge of correlated loss when making the outsourcing decisions. We first show that if the two firms in the business partnership outsource to the same MSSP, the security investments on the two firms are greater under positive externalities and vice versa. More importantly, we further find out that under positive externality the two firms are better off outsourcing to the same MSSP if the correlated loss level is lower (greater) than a threshold when the compensation ratios are less (greater) than 1; under negative externality the two firms are better off outsourcing to the same MSSP if the correlated loss level is lower (greater) than a threshold when the compensation ratios are greater (less) than 1. Our analytical results offer important managerial implications to firms in a close business partnership when deciding on their outsourcing strategies.

Keywords: Information security; Outsourcing strategy; Correlated loss; Security externality; Moral hazard (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://link.springer.com/10.1007/s10796-020-10009-4 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:infosf:v:23:y:2021:i:3:d:10.1007_s10796-020-10009-4

Ordering information: This journal article can be ordered from
http://www.springer.com/journal/10796

DOI: 10.1007/s10796-020-10009-4

Access Statistics for this article

Information Systems Frontiers is currently edited by Ram Ramesh and Raghav Rao

More articles in Information Systems Frontiers from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().