Network Security and Contagion

Acemoglu, Daron, Malekian, Azarakhsh and Ozdaglar, Asuman (2013) Network Security and Contagion.

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Official URL: http://tse-fr.eu/pub/29247

Abstract

We develop a theoretical model of security investments in a network of interconnected agents. Network connections introduce the possibility of cascading failures due to an exogenous or endogenous attack depending on the profile of security investments by the agents. The general presumption in the literature, based on intuitive arguments or analysis of symmetric networks, is that because security investments create positive externalities on other agents, there will be underinvestment in security. We show that this reasoning is incomplete because of a first-order economic force: security investments are also strategic substitutes. In a general (non-symmetric) network, this implies that underinvestment by some agents will encourage overinvestment by others. We demonstrate by means of examples there can be overinvestment by some agents and also that aggregate probabilities of infection can be lower in equilibrium compared to the social optimum. We then provide sufficient conditions for underinvestment. This requires both sufficiently convex cost functions (convexity alone is not enough) and networks that are either symmetric or locally tree-like. We also characterize the impact of network structure on equilibrium and optimal investments. Finally, we show that when the attack location is endogenized (by assuming that the attacker chooses a probability distribution over the location of the attack in order to maximize damage), there is an additional incentive for overinvestment: greater investment by an agent shifts the attack to other parts of the network.

Item Type: Monograph (Working Paper)
Language: English
Date: June 2013
Uncontrolled Keywords: cascades, contagion, network security, security investments, strategic substitutes, underinvestment
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 21 Sep 2015 13:09
Last Modified: 07 Mar 2018 13:23
OAI ID: oai:tse-fr.eu:29247
URI: http://publications.ut-capitole.fr/id/eprint/16876

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