This paper studies the security choices of identical plantcontroller systems, when their security is interdependent due the exposure to network induced risks. Each plant ismodeled by a discrete-time stochastic linear system, which is sensed and controlled over a communication network. We model security decisions of the individual systems (also called players) as a game. We consider a two-stage ...

Several industries that provide services to customers (e.g., public utility and transportation) charge higher prices during peak hours smooth demand. With technologies electronic shelf labels) enabling retailers change easily within each day, should supermarkets use peak-hour pricing? To examine this question formally, we introduce a stylized duopoly model in the presence of “negative externali...

The market for security software has witnessed an unprecedented growth in recent years. A closer examination of this market reveals that, unlike a traditional software market, the use of vertical differentiation strategy is quite limited in this market. In this paper, we develop a quantitative model to explore the possible reason. Our model identifies a negative network externality effect as th...

In this paper we test the effectiveness of a compensation mechanism when a negative externality is produced. It allows agents suffering from the negative externality to compensate those who reduce its production. Transfers are implemented via a two-stage design which is an adaptation of Varian’s mechanism. It has been previously tested in the lab with different 10 types of games, and its effect...

There is now a great deal of empirical evidence that business cycle fluctuations contain asymmetries. I focus on a theoretical model intended to capture the nonlinear behavior of aggregate output following a large negative shock. Nonlinearity introduced by Bayesian updating and an information externality produces an economy in which the response to large negative shocks is an increase in future...

Peer effects in innovation adoption decisions have been extensively studied. However, the underlying mechanisms of peer effects are generally not explicitly accounted for. Gaps in this knowledge could lead to misestimation of peer effects and inefficient interventions. This study examined the role of two mechanisms—sharing experiences (namely, experience effect) and externalities—in the adoptio...

We study the impact of yield uncertainty (supply side) and self-interested consumers (demand side) on the inefficiency in the influenza vaccine supply chain. Previous economic studies, focusing on demand side, find that the equilibrium demand is always less than the socially optimal demand since self-interested individuals do not internalize the social benefit of protecting others via reduced i...

Managerial responses to online customer reviews not only affect customers who receive the responses but may also influence subsequent customers who observe the responses. This externality arises because of the public nature of online interactions. However, prior studies were mainly in offline settings where such externality rarely exists. In this study, we assess the magnitude of such externali...

In this paper, we investigate the interactions between two digital content distribution channels: central server (CS) based and peer-to-peer (P2P) based. A central server based channel (such as iTunes) forms a network that displays negative externality, while P2P (such as Vuze) is a network with positive externality. When presented with the option of these two channels to obtain digital content...