The Law and Economics of Cyber Risk Pooling

41 Pages Posted: 16 May 2019

See all articles by Michael G. Faure

Michael G. Faure

University of Maastricht - Faculty of Law, Metro; Erasmus University Rotterdam (EUR) - Erasmus School of Law

Bernold Nieuwesteeg

Erasmus University Rotterdam (EUR) - Rotterdam Institute of Law and Economics

Date Written: March 1, 2018

Abstract

In this paper, we study the law and economics of cyber risk pooling arrangements: risk sharing without an insurer. We start our discussion with the current theoretical foundations for risk shifting in cyber security. We subsequently discuss cyber risk pooling in relation to individual risk management and cyber insurance. This leads to the formulation of conditions for effective risk pooling in cyber security. We show that pooling, under some circumstances, may be more effective than cyber insurance. The main question for future research is whether risk pools in cyber security are capable of compartmentalization of risks and whether transaction costs of monitoring can be kept sufficiently low.

Keywords: cyber insurance, individual risk management, risk shifting, risk pooling, cyber risk pool

JEL Classification: K13, K32

Suggested Citation

Faure, Michael G. and Nieuwesteeg, Bernold, The Law and Economics of Cyber Risk Pooling (March 1, 2018). New York University Journal of Law & Business, 2018, Vol. 14(3), 923-963., Available at SSRN: https://ssrn.com/abstract=3372960

Michael G. Faure (Contact Author)

University of Maastricht - Faculty of Law, Metro ( email )

PO Box 616
Maastricht, 6200 MD
Netherlands
+31 - 43 - 388 30 60 (Phone)
+31 - 43 - 325 90 91 (Fax)

HOME PAGE: http://www.michaelfaure.be

Erasmus University Rotterdam (EUR) - Erasmus School of Law ( email )

3000 DR Rotterdam
Netherlands

Bernold Nieuwesteeg

Erasmus University Rotterdam (EUR) - Rotterdam Institute of Law and Economics ( email )

Burgemeester Oudlaan 50
PO box 1738
Rotterdam, 3000 DR
Netherlands

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