The economics of cyber risk
From Aniket Baksy and Daniele Caratelli, here is part of the abstract: Because larger firms are more attractive targets but also invest more in protection, the model generates an inverse-U relationship between firm size and attack risk, consistent with the data. Introducing cyber risk reduces firm entry by 3.6 percent, aggregate productivity by 0.6 percent, […] The post The economics of cyber…
A recent study explores the economic implications of cyber risk, revealing that larger firms face a higher risk of cyberattacks, but are also more likely to invest in protective measures. The model demonstrates an inverse relationship between firm size and attack risk, aligning with empirical data. Unfortunately, imposing cyber risk measures could lead to a reduction in firm entry, productivity, and overall output.
These consequences stem from broader economic adjustments, such as changes in firm entry and size, as well as spillover effects, which are not captured in conventional partial-equilibrium analyses.
The research underscores the stark contrast between policy responses to cyber risk. Well-crafted subsidies and minimum cybersecurity standards have the potential to enhance aggregate output, whereas bailouts may have the opposite effect by lowering it. While the paper does not focus on artificial intelligence, it may serve as a foundation for estimating the potential costs of future AI-driven cyberattacks.
The authors emphasize the need for further investigation in this area and express hope that the subfield will gain greater prominence in the near future.
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