Attack-Deterring and Damage-Control Investments in Cybersecurity

W. Lam ()
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W. Lam: University of Liege

No 2015023, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: This paper studies investment in cybersecurity, where both the software vendor and the consumers can invest in security. In addition, the vendor can undertake attack-deterring and damage-control investments. I show that full liability, under which the vendor is liable for all damages, does not achieve eciency and, in particular, the vendor underinvests in attack deterrence and overinvests in damage control. Instead, the joint use of an optimal standard, which establishes a minimum compliance framework, and partial liability can restore eciency. This suggests that policies that encourage not only firms, but also consumers to invest in security might be desirable.

Keywords: cybersecurity; investment; standard; liability; bilateral care (search for similar items in EconPapers)
JEL-codes: K13 L1 L8 (search for similar items in EconPapers)
Date: 2015-05-01
New Economics Papers: this item is included in nep-mic and nep-pay
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Persistent link: https://EconPapers.repec.org/RePEc:cor:louvco:2015023

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