TY  - JOUR
AU  - Heal,Geoffrey
AU  - Kunreuther,Howard
TI  - Interdependent Security: A General Model
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10706
PY  - 2004
Y2  - August 2004
UR  - http://www.nber.org/papers/w10706
L1  - http://www.nber.org/papers/w10706.pdf
N1  - Author contact info:
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

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
AB  - 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.
ER  -