Information Security Investment with Different Information Types: A Two-Firm Analysis

We analyze information security investment decisions by two firms that possess imperfectly substitutable information assets. Information assets are imperfectly substitutable if information at each firm is valuable and becomes more valuable when combined. When compared to optimal investment decisions made by a central planner, we find diametrically opposite results in the case where these decisions are made independently: substitutable assets lead to an “arms race” in which both firms over-invest whereas complementary assets lead to under-provision of “public goods” in which both firms under-invest. We also find that firms with highly substitutable information assets may not necessarily increase the amount of security investment in a centralized investment environment as the intensity of the deflected cross traffic increases

Expanding the Gordon-Loeb Model to Cyber-Insurance

We present an economic model for decisions on competing cyber-security and cyber-insurance investment based on the Gordon-Loeb model for investment in information security. We consider a one-period scenario in which a firm may invest in information security measures to reduce the probability of a breach, in cyber-insurance or in a combination of both. The optimal combination of investment and insurance under the assumptions of the Gordon-Loeb model is investigated via consideration of the costs and benefits of investment in security alongside purchasing insurance at an independent premium rate. Under both exponential (constant absolute risk aversion) and logarithmic (constant relative risk aversion) utility functions it is found that when the insurance premium is below a certain value, utility is maximised with insurance and security investment. These results suggest that cyber-insurance is a worthwhile undertaking provided it is not overly costly. We believe this model to be the first attempt to integrate the Gordon-Loeb model into a classical microeconomic analysis of insurance, particularly using the Gordon-Loeb security breach functions to determine the probability of an insurance claim. The model follows the tradition of the Gordon-Loeb model in being accessible to practitioners and decision makers in information security

Incentive Schemes to Delay Retirement and the Equilibrium Interplay with Human Capital Investment

This article introduces the role of labor demand of the elderly in the analysis of retirement decisions. We integrate both human capital formation and up-dating costs on older workers' job and explore how Social Security system affects human capital investment and retirement decisions. We show that, from the worker''s point of view, human capital investment and retirement age decisions are interdependent and positively related. On the one hand, an actuarially unfair pay-as-you-go system imposes a tax on postponed retirement which encourages early retirement, thus reducing incentives to invest in human capital. On the other hand, the pension system imposes a tax on training intensity. As a result, workers have less incentives to continue working. From the firm''s point of view, this implies an indirect tax on labor demand due to the decrease in older workers'' productivity. We then examine the pattern of the optimal policies according to flexibility versus rigidity of wages.

Disagreement and security design

We study optimal security design when the issuer and market participants agree to disagree about the characteristics of the asset to be securitized. We show that pooling assets can be optimal because it mitigates the effects of disagreement between issuer and investors, whereas tranching a cash-flow stream allows the issuer to exploit disagreement between investors. Interestingly, pooling and tranching can be complements. The optimality of debt with or without call provisions can be derived as a special case. In a model with multiple financing rounds, convertible securities naturally emerge to finance highly skewed ventures

Conditional Allocation of Control Rights in Venture Capital Finance

When a young entrepreneurial firm matures, it is often necessary to replace the founding entrepreneur by a professional manager. This replacement decision can be affected by the private benefits of control enjoyed by the entrepreneur which gives rise to a conflict of interest between the entrepreneur and the venture capitalist. We show that a combination of convertible securities and contingent control rights can be used to resolve this conflict efficiently. This contractual arrangement is frequently observed in venture capital finance

An Overview of Economic Approaches to Information Security Management

The increasing concerns of clients, particularly in online commerce, plus the impact of legislations on information security have compelled companies to put more resources in information security. As a result, senior managers in many organizations are now expressing a much greater interest in information security. However, the largest body of research related to preventing breaches is technical, focusing on such issues as encryption and access control. In contrast, research related to the economic aspects of information security is small but rapidly growing. The goal of this technical note is twofold: i) to provide the reader with an structured overview of the economic approaches to information security and ii) to identify potential research directions

Capital Structure and Political Risk in Asia-Pacific Real Estate Markets

This study investigates the determinants of capital structure decisions by real estate firms, with a specific focus on the impact of political risk on leverage. Using a sample of Asia-Pacific REITs and listed property trusts, we find those firms with properties located in countries characterized by relatively high degrees of political risk, such as political instability, and/or greater uncertainty in the ability to repatriate and monetize profits from international investment activities, employ less debt than their counterparts operating in more politically stable environments. This core finding remains robust to alternative sample selection criteria including the division of the sample into high versus low market-to-book value firms, and also holds within the subset of organizations that are active in raising additional capital in the secondary markets

A systematic method of project selection based on risk and return criteria and according to the mean-semi-deviation behavioral hypothesis

The uncertain problem of Industrial project selection is the topic of discussion in this article. As the unrealistic assumption of certainty is relaxed in this problem, the decision maker is faced with a two-criterion decision model in which justifying between Risk and Return are the main concerns. The concept of Risk has been revised and the “Semi-Deviation” measure has been proposed to represent the risk of a project. Based on the new Mean-Semi-deviation Behavior, and according to Utility and Modern Portfolio theories, a more efficient method of project evaluation will be presented