Software Vulnerability Analysis in Cyber Security: A Network Structure Approach

I analyze the effects of network structure, in particular network centrality, on vulnerability disclosure policy. My analysis finds that the structure of the network of households can greatly effect the overall welfare of the economy. Specifically, I find that the distribution of the centrality of the nodes and the radius of the network have a significant effect on the optimal disclosure policy system. I find that the level of activity by the software vendor to find vulnerabilities, alpha, only effects the household decision as a “show of good faith". As long as the software vendor puts a little effort into alpha, then the household is more likely to update and desire to purchase the software. However, at the margin, the centrality effects of the network dominate the effects of the software vendor's attempt to change alpha.