An Introduction to Key Themes in the Economics of Cyber-security

Article Source: in Cyber Warfare and Cyber Terrorism, Lech J. Janczewski and Andrew M. Colarik, eds., IGI Global, 2007, pp. 78-82
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This paper looks at how computer security problems like viruses are solved.


Policy Relevance:

Markets are responding to develop solutions to computer security problems.


Key Takeaways:
  • Computer viruses and other software vulnerability can do billions of dollars in damage, but few computer users have updated virus protection.
  • One economic factor that affects security is that users do not use enough protection, because some of the costs of viruses are borne by others.
  • Another economic factor in security is “Network effects.” This means that a product becomes more valuable to a consumer when there are more other users. Microsoft software is more valuable because it is used by many people.
    • Network effects make security problems worse, because many people tend to use the same product and it is vulnerable to the same problems.
  • Markets have developed in cyber-security. Some firms pay users who detect and report software weaknesses. Software vendors are usually not involved.



Neil Gandal

About Neil Gandal

Neil Gandal is a Professor of Economics and the Chair of the Eitan Berglas School of Economics at Tel Aviv University. His current research focuses on industrial organization, specifically on the economics of compatibility and standardization, the economics of the Internet, open source, and social networks.