Optimal solution to cybercrimes: lessons from law and economics
Ruperto P. Majuca · RePEc: Research Papers in Economics
A model is presented wherein cybercrimes are addressedÊthrough a combination of private and public measures. ThisÊcaptures the substitutability of private and public responses andÊdetermines the optimal combination of these approaches. TheÊsocially optimal level of security is achieved by equalizing theÊmarginal-benefit-to-marginal-cost ratios of each of the threeÊalternatives: private security investment, nonrivalrous securityÊinvestment, and law enforcement measures. The interrelatednessÊof Internet risks causes individual firms to underinvest in privateÊand public security goods. The government thus lowers theÊlevel of police enforcement expenditures to induce firms toÊinvest more in individual precautions. In certain conditions, Êcooperation results in socially optimal levels of expenditures inÊprivate and public security goods. The Shapley [1953] value canÊbe used as a criterion for allocating the costs and benefits amongÊthe members of a security cooperative