@article{Cerdeiro:206416,
      recid = {206416},
      author = {Cerdeiro, Diego and Dziubinski, Marcin and Goyal, Sanjeev},
      title = {Contagion Risk and Network Design},
      address = {2015-06-16},
      number = {824-2016-54851},
      series = {CCSD},
      pages = {65},
      month = {Jun},
      year = {2015},
      abstract = {Individuals derive benefits from their connections, but  these may, at the same time, transmit external threats.  Individuals therefore invest in security to protect  themselves. However, the incentives to invest in security  depend on their network exposures. We study the problem of  designing a network that provides the right individual  incentives. Motivated by cybersecurity, we first study the  situation where the threat to the network comes from an  intelligent adversary. We show that, by choosing the right  topology, the designer can bound the welfare costs of  decentralized protection. Both over-investment as well as  under-investment can occur depending on the costs of  security. At low costs, over-protection is important: this  is addressed by disconnecting the network into two unequal  components and sacrificing some nodes. At high costs,  under-protection becomes salient: it is addressed by  disconnecting the network into equal components. Motivated  by epidemiology, we then turn to the study of random  attacks. The over-protection problem is no longer present,  whereas under-protection problems is mitigated in a  diametrically opposite way: namely, by creating dense  networks that expose the individuals to the risk of  contagion.},
      url = {http://ageconsearch.umn.edu/record/206416},
      doi = {https://doi.org/10.22004/ag.econ.206416},
}