Who Should Pay for Interdependent Risk? Policy Implications for Security Interdependence Among Airports

Abstract

We study interdependent risks in security, and shed light on the economic and policy implications of increasing security interdependence in presence of reactive attackers. We investigate the impact of potential public policy arrangements on the security of a group of interdependent organizations, namely, airports. Focusing on security expenditures and costs to society, as assessed by a social planner, to individual airports and to attackers, we first develop a game-theoretic framework, and derive explicit Nash equilibrium and socially optimal solutions in the airports network. We then conduct numerical experiments mirroring real-world cyber scenarios, to assess how a change in interdependence impact the airports' security expenditures, the overall expected costs to society, and the fairness of security financing. Our study provides insights on the economic and policy implications for the United States, Europe, and Asia.