The economics of information security investment

  • Authors:
  • Lawrence A. Gordon;Martin P. Loeb

  • Affiliations:
  • University of Maryland, College Park, MD;University of Maryland, College Park, MD

  • Venue:
  • ACM Transactions on Information and System Security (TISSEC)
  • Year:
  • 2002

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Abstract

This article presents an economic model that determines the optimal amount to invest to protect a given set of information. The model takes into account the vulnerability of the information to a security breach and the potential loss should such a breach occur. It is shown that for a given potential loss, a firm should not necessarily focus its investments on information sets with the highest vulnerability. Since extremely vulnerable information sets may be inordinately expensive to protect, a firm may be better off concentrating its efforts on information sets with midrange vulnerabilities. The analysis further suggests that to maximize the expected benefit from investment to protect information, a firm should spend only a small fraction of the expected loss due to a security breach.