• Asia pacific journal of information systems
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• v.22 no.1
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• pp.79-101
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• 2012

This study expands the current body of research by exploring multiple scenarios of insufficient and excessive IT security investments caused by interdependent risks and the interplay between IT security investments and cyber insurance. A key finding is that organizations experiencing interdependent risks with different types of cyber attacks (i.e., targeted and untargeted attacks) use different strategies in making IT security investment decisions and in purchasing cyber insurance policies for their information security risk management than firms that are facing independent risks. The study further provides an economic rationale for employing insurance mechanisms as a risk management solution for information security.

• Asia pacific journal of information systems
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• v.21 no.4
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• pp.27-43
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• 2011

This article explores economic models that show the optimal level of information security investment in the presence of interdependent security risks, Using particular functional forms, the analysis shows that the relationship between the levels of security vulnerability and the levels of optimal security investments is affected by externalities caused by agents' correlated security risks. This article further illustrates that, compared to security investments in the situation of independent security risks, in order to maximize the expected benefits from security investments, an agent should invest a larger fraction of the expected loss from a security breach in the case of negative externalities, while an agent should spend a smaller fraction of the expected loss in the case of negative externalities.