System Reliability and Free Riding

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Pricing Security: Vulnerabilities as Externalities

Full Citation

Hal Varian, System Reliability and Free Riding, in Economics of Information Security (L. Jean Camp & Stephen Lewis eds., 2004). Web AltWeb



Issues: Economics of Cybersecurity

Key Words


System reliability often depends on the effort of many individuals, making reliability a public good. It is well-known that purely voluntary provision of public goods may result in a free rider problem: individuals may tend to shirk, resulting in an inefficient level of the public good. How much effort each individual exerts will depend on his own benefits and costs, the efforts exerted by the other individuals, and the technology that relates individual effort to outcomes. In the context of system reliability, we can distinguish three prototype cases.

Additional Notes and Highlights