The Economics of Cyber Crime

37 Pages Posted: 11 Jun 2020

See all articles by Xiaofan Li

Xiaofan Li

University of Texas at Austin - Department of Information, Risk and Operations Management

Andrew B. Whinston

University of Texas at Austin - Department of Information, Risk and Operations Management

Date Written: May 18, 2020

Abstract

Digital technologies are creating more value and thus becoming more attractive to cyber criminals. Gary Becker provides a philosophy for understanding crimes from an economic perspective, but criminal behavior and potential policies against it differ in the context of a digital economy. Criminals with economic incentives are expected to hack digital systems and ask for a ransom to not disturb those compromised. We model the interactions between attackers and defenders with a dynamic Bayesian game. There are two processes. The first is the attackers' learning about the distribution of the defenders' level of defense, and the second is the attackers' reputation building based on being honest after being paid. The attackers' dynamic decision is captured by a bandit process. The defenders' behavior exerts externalities on themselves by influencing the attackers' behavior. We explore policies that could enhance social welfare through moderating these externalities.

Keywords: cybersecurity, game theory, externalities, public policy

Suggested Citation

Li, Xiaofan and Whinston, Andrew B., The Economics of Cyber Crime (May 18, 2020). Available at SSRN: https://ssrn.com/abstract=3603694 or http://dx.doi.org/10.2139/ssrn.3603694

Xiaofan Li (Contact Author)

University of Texas at Austin - Department of Information, Risk and Operations Management ( email )

CBA 5.202
Austin, TX 78712
United States

Andrew B. Whinston

University of Texas at Austin - Department of Information, Risk and Operations Management ( email )

CBA 5.202
Austin, TX 78712
United States
512-471-8879 (Phone)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
134
Abstract Views
554
rank
294,609
PlumX Metrics