Who Should Pay for Interdependent Risk? Policy Implications for Cyber-Physical Security Interdependence in Aviation

Abstract

This study addresses various issues in the study of interdependent cyber security, and sheds light on the economic and policy implications of increasing security interdependence. We investigate the impact of a policy arrangement affecting security interdependence on agents' regulated and unregulated actions, and the corresponding costs to society. Focusing on security expenditure issues in the airport network, we first develop a game theory based analytical framework, and derive explicit Nash equilibrium and socially optimal solutions. We then conduct numerical experiments that reflect the real-world context (data from Airport Council International), to assess the impact of a change in interdependence on airports' security expenditures and the overall expected costs to society and the fairness of security financing. Our study provide insights on the economic and policy implications for US, Europe and Asia.