Data Redundancies and Cyber Attacks

Abstract

Payments transaction data observed by both sender and receiver entities create data redundancies. Redundancies serve as partial, complementary backups if entities agree to share mutual transaction data in the event of a cyber attack, restoring their records and avoiding default. We analyze how redundancies impact private and socially optimal data security investments. Data-sharing agreements are both privately and socially preferable to data autarky. But redundancies encourage free-riding, leading to underinvestment. A regulated financial infrastructure that monitors and protects all data can bring outcomes closer to the social optimum.

Keywords: cyber attacks, data security, data sharing, backups, free riding, redundancy, DLT JEL codes: D8, G28