TY  - JOUR
AU  - Kunreuther,Howard
AU  - Heal,Geoffrey
TI  - Interdependent Security: The Case of Identical Agents
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8871
PY  - 2002
Y2  - April 2002
UR  - http://www.nber.org/papers/w8871
L1  - http://www.nber.org/papers/w8871.pdf
N1  - Author contact info:
Howard Kunreuther
Operations and Information Management
The Wharton School
University of Pennsylvania
3730 Walnut Street, 500 JMHH
Philadelphia, PA 19104-6366
Tel: 215/898-4589
Fax: 215/573-2130
E-Mail: kunreuther@wharton.upenn.edu

Geoffrey Heal
Graduate School of Business
616 Uris Hall
Columbia University
New York, NY 10027-6902
Tel: 212/854-6459
Fax: 212/316-9219
E-Mail: gmh1@columbia.edu
AB  - Do firms have adequate incentives to invest in anti-terrorism mechanisms?  This paper develops a framework for addressing this issue when the security choices by one agent affect the risks faced by others. We utilize the airline security problem to illustrate how the incentive by one airline to invest in baggage checking is affected by the decisions made by others. Specifically if an airline believes that others will not invest in security systems it has much less economic incentive to do so on its own.  Private sector mechanisms such as insurance and liability will not necessarily lead to an efficient outcome. To induce adoption of security measures one must turn to regulation, taxation or institutional coordinating mechanisms such as industry associations. We compare the airline security example with problems having a similar structure (i.e., computer security and fire protection) as well as those with different structures (i.e., theft protection and vaccinations). The paper concludes with suggestions for future research.
ER  -