A New Approach to Quantifying, Reducing and Insuring Cyber Risk: Preliminary Analysis and Proposal for Further Research

19 Pages Posted: 28 Mar 2020

See all articles by Neil Gandal

Neil Gandal

Berglas School of Economics, Tel Aviv University; Centre for Economic Policy Research (CEPR)

Michael H. Riordan

Columbia University - Columbia Business School

Shalom Bublil

affiliation not provided to SSRN

Multiple version iconThere are 2 versions of this paper

Date Written: February 26, 2020

Abstract

Few would dispute that cyber risk is a very serious problem for the global economy and for society. But there is a “disconnect” between acknowledgement of the problem and action to address the problem. What is the relationship between vulnerabilities, preventive measures, and security incidents, like the leaking of sensitive data (say credit card information) to the web? To the best of our knowledge, little if anything is known about the relationship among these variables and no one has examined this issue empirically at the micro level, that is, at the level of the firm.

In this paper, we put together a remarkable and unique cross-sectional data set at the firm level that includes information on vulnerabilities, attempted email attacks, incidents (breaches), precautions (security measures.) and firm characteristics. The data set contains slightly under 1000 small and medium firms in the U.K. We empirically examine the data and show that there are meaningful correlations among incidents and the other variables. Finally, we estimate a reduced form model with incidents as the dependent variable to illustrate the potential from employing such data.

Keywords: Cyber Risk, Cyber-security, Cyber Security, Empirical

JEL Classification: G2, G22, D22

Suggested Citation

Gandal, Neil and Riordan, Michael H. and Bublil, Shalom, A New Approach to Quantifying, Reducing and Insuring Cyber Risk: Preliminary Analysis and Proposal for Further Research (February 26, 2020). Available at SSRN: https://ssrn.com/abstract=3548380 or http://dx.doi.org/10.2139/ssrn.3548380

Neil Gandal (Contact Author)

Berglas School of Economics, Tel Aviv University ( email )

Tel Aviv University
Tel Aviv 69978
Israel
+972 3 640 9907 (Phone)
+972 3 640 9908 (Fax)

HOME PAGE: http://www.neilgandal.com/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Michael H. Riordan

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States
212-854-6984 (Phone)

Shalom Bublil

affiliation not provided to SSRN

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