RETHINKING FS-ISAC: AN IT SECURITY INFORMATION SHARING MODEL FOR THE FINANCIAL SERVICES SECTOR

Charles Liu (), Humayun Zafar and Yoris Au
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Charles Liu: UTSA

Working Papers from College of Business, University of Texas at San Antonio

Abstract: This study examines a critical incentive alignment issue facing FS-ISAC (the information sharing alliance in the financial services industry). Failure to encourage members to share their IT security-related information has seriously undermined the founding rationale of FS-ISAC. Our analysis shows that many information sharing alliances’ membership policies are plagued with the incentive misalignment issue and may result in a “freeriding” or “no information sharing” equilibrium. To address this issue, we propose a new information sharing membership policy that incorporates an insurance option and show that the proposed policy can align members’ incentives and lead to a socially optimal outcome. Moreover, when a transfer payment mechanism is implemented, all member firms will be better off joining the insurance network. These results are demonstrated in a simulation in which IT security breach losses are compared both with and without participating in the proposed information sharing insurance plan.

Keywords: security; organization; information sharing; economic theory; game theory; simulation (search for similar items in EconPapers)
JEL-codes: C70 D53 D71 D74 G22 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2013-11-04
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