Network design and defence

Infrastructure networks – in communication and transport – are a key feature of an economy. The functionality of these networks depends on the connectivity and sizes of different components. However, these networks face a variety of threats ranging from natural disasters to intelligent attacks (carried out by human agents). How should networks be defended and designed to ensure connectivity? We develop a strategic model to study this question. There are two ‘players’, a designer and an adversary. The designer forms links among a given set of n nodes. These links are costly. In addition, the designer may also choose to protect some nodes at a cost. The adversary then allocates his resources to attack nodes. Successful attack on a node leads to its elimination (along with all its connections). We study the sub-game perfect equilibrium of this game. Our main finding is that if defence is affordable and reliable, then the network is sparse and heterogeneous, and either centrally or fully protected. On the other hand, if defence is relatively costly compared to linking then dense and homogeneous networks arise in equilibrium. ∗Faculty of Economics, University of Cambridge. Email: [email protected] †Institute of Informatics, Faculty of Mathematics, Informatics and Mechanics, Warsaw University ‡Faculty of Economics & Christ’s College, University of Cambridge. Email: [email protected] We thank Oliver Baetz, Diego Cerdeiro, Andrea Galeotti, Michael Koenig, Dan Kovenock, Asuman Ozdaglar, and seminar participants at Cambridge, MIT, Microsoft (Cambridge and New England) and WEHIA 2012 (Paris) for useful comments.