Interdependent Security: A General Model / Geoffrey Heal, Howard Kunreuther.

By:

Heal, Geoffrey

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w10706.Publication details: Cambridge, Mass. National Bureau of Economic Research 2004.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: In an interdependent world the risks faced by any one agent depend not only on its choices but also on those of all others. Expectations about others' choices will influence investments in risk-management, and the outcome can be sub-optimal investment all round. We model this as the Nash equilibrium of a game and give conditions for such a sub-optimal equilibrium to be tipped to an optimal one. We also characterize the smallest coalition to tip an equilibrium, the minimum critical coalition, and show that this is also the cheapest critical coalition, so that there is no less expensive way to move the system from the sub- optimal to the optimal equilibrium. We illustrate these results by reference to airline security, the control of infectious diseases via vaccination and investment in research and development.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w10706 (Browse shelf(Opens below))	Not For Loan

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August 2004.

In an interdependent world the risks faced by any one agent depend not only on its choices but also on those of all others. Expectations about others' choices will influence investments in risk-management, and the outcome can be sub-optimal investment all round. We model this as the Nash equilibrium of a game and give conditions for such a sub-optimal equilibrium to be tipped to an optimal one. We also characterize the smallest coalition to tip an equilibrium, the minimum critical coalition, and show that this is also the cheapest critical coalition, so that there is no less expensive way to move the system from the sub- optimal to the optimal equilibrium. We illustrate these results by reference to airline security, the control of infectious diseases via vaccination and investment in research and development.