An Efficient Dynamic Allocation Mechanism for Security in Networks of Interdependent Strategic Agents

Motivated by security issues in networks, we study the problem of incentive mechanism design for dynamic resource allocation in a multi-agent networked system. Each strategic agent has a private security state which can be safe or unsafe and is only known to him. At every time, each agent faces security threats from outside as well as from his unsafe neighbors. Therefore, the agents’ states are correlated and have interdependent stochastic dynamics. Agents have interdependent valuations, as each agent’s instantaneous utility depends on his own security state as well as his neighbors’ security states. There is a network manager that can allocate a security resource to one agent at each time so as to protect the network against attacks and maximize the overall social welfare. We propose a dynamic incentive mechanism that implements the efficient allocation and is ex-ante (in expectation) individually rational and budget balanced. We present a reputation-based payment that mitigates any risk that the agents or the network manager may face to get a negative utility or to run a budget deficit, respectively, for some realizations of the network stochastic evolution. Therefore, our results provide a dynamic incentive mechanism that implements efficient allocations in networked systems with strategic agents that have correlated types and interdependent valuations, and is approximate ex-post individually rational and budget balanced.