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Returns to information security investment: Endogenizing the expected loss

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  • Kjell Hausken

    (University of Stavanger)

Abstract

This paper endogenizes the value of an information set which has to be produced and protected. The profit is inverse U shaped in security investment and production effort. The breach probability is commonly assumed to decrease convexly in security investment, which means that modest security investment is sufficient to deter most perpetrators. We allow the breach probability to be not only convex, but concave, which means that substantial security investment is needed to deter most perpetrators. Convexity versus concavity depends on the security environment, perpetrators, technology, and law enforcement. A firm strikes a balance between producing and protecting an information set dependent on seven model parameters for production, protection, convexity, concavity, vulnerability, and resource strength.

Suggested Citation

  • Kjell Hausken, 2014. "Returns to information security investment: Endogenizing the expected loss," Information Systems Frontiers, Springer, vol. 16(2), pages 329-336, April.
    • Handle: RePEc:spr:infosf:v:16:y:2014:i:2:d:10.1007_s10796-012-9390-9
    DOI: 10.1007/s10796-012-9390-9
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    References listed on IDEAS

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    1. Kjell Hausken, 2005. "Production and Conflict Models Versus Rent-Seeking Models," Public Choice, Springer, vol. 123(1), pages 59-93, April.
    2. Kjell Hausken, 2006. "Returns to information security investment: The effect of alternative information security breach functions on optimal investment and sensitivity to vulnerability," Information Systems Frontiers, Springer, vol. 8(5), pages 338-349, December.
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    Cited by:

    1. Saini Das & Arunabha Mukhopadhyay & Debashis Saha & Samir Sadhukhan, 2019. "A Markov-Based Model for Information Security Risk Assessment in Healthcare MANETs," Information Systems Frontiers, Springer, vol. 21(5), pages 959-977, October.
    2. Kjell Hausken & Jonathan W. Welburn, 2021. "Attack and Defense Strategies in Cyber War Involving Production and Stockpiling of Zero-Day Cyber Exploits," Information Systems Frontiers, Springer, vol. 23(6), pages 1609-1620, December.
    3. Yong Wu & Gengzhong Feng & Richard Y. K. Fung, 2018. "Comparison of information security decisions under different security and business environments," Journal of the Operational Research Society, Taylor & Francis Journals, vol. 69(5), pages 747-761, May.
    4. Mazaher Kianpour & Stewart J. Kowalski & Harald Øverby, 2021. "Systematically Understanding Cybersecurity Economics: A Survey," Sustainability, MDPI, vol. 13(24), pages 1-28, December.
    5. Yong Wu & Mengyao Xu & Dong Cheng & Tao Dai, 2022. "Information Security Strategies for Information-Sharing Firms Considering a Strategic Hacker," Decision Analysis, INFORMS, vol. 19(2), pages 99-122, June.
    6. Yosra Miaoui & Noureddine Boudriga, 2019. "Enterprise security investment through time when facing different types of vulnerabilities," Information Systems Frontiers, Springer, vol. 21(2), pages 261-300, April.
    7. Chenglong Zhang & Nan Feng & Jianjian Chen & Dahui Li & Minqiang Li, 2021. "Outsourcing Strategies for Information Security: Correlated Losses and Security Externalities," Information Systems Frontiers, Springer, vol. 23(3), pages 773-790, June.
    8. Tung-Hsien Wu & Shi-Ming Huang & Shaio Yan Huang & David C. Yen, 2017. "The effect of competencies, team problem-solving ability, and computer audit activity on internal audit performance," Information Systems Frontiers, Springer, vol. 19(5), pages 1133-1148, October.
    9. Mahmud Akhter Shareef & Vinod Kumar & Yogesh K. Dwivedi & Uma Kumar, 2016. "Service delivery through mobile-government (mGov): Driving factors and cultural impacts," Information Systems Frontiers, Springer, vol. 18(2), pages 315-332, April.
    10. Guizhou Wang & Jonathan W. Welburn & Kjell Hausken, 2020. "A Two-Period Game Theoretic Model of Zero-Day Attacks with Stockpiling," Games, MDPI, vol. 11(4), pages 1-26, December.
    11. David Iliaev & Sigal Oren & Ella Segev, 2023. "A Tullock-contest-based approach for cyber security investments," Annals of Operations Research, Springer, vol. 320(1), pages 61-84, January.
    12. Chenglong Zhang & Nan Feng & Jianjian Chen & Dahui Li & Minqiang Li, 0. "Outsourcing Strategies for Information Security: Correlated Losses and Security Externalities," Information Systems Frontiers, Springer, vol. 0, pages 1-18.
    13. Yosra Miaoui & Noureddine Boudriga, 0. "Enterprise security investment through time when facing different types of vulnerabilities," Information Systems Frontiers, Springer, vol. 0, pages 1-40.
    14. Tung-Hsien Wu & Shi-Ming Huang & Shaio Yan Huang & David C. Yen, 0. "The effect of competencies, team problem-solving ability, and computer audit activity on internal audit performance," Information Systems Frontiers, Springer, vol. 0, pages 1-16.
    15. Feng Xu & Xin (Robert) Luo & Hongyun Zhang & Shan Liu & Wei (Wayne) Huang, 2019. "Do Strategy and Timing in IT Security Investments Matter? An Empirical Investigation of the Alignment Effect," Information Systems Frontiers, Springer, vol. 21(5), pages 1069-1083, October.

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