Economics and Value of Information Systems


Using a traditional leader-follower decisional sequence as the manifestation of power structure in a supply chain, this work generalizes extant research in IT security. We propose a game theoretic model to analyze the equilibrium IT security of the supply chain in the Stackelberg game, where the power structure in the supply chain manifests in a natural leader. Our results indicate that a natural leader-follower framework ensures higher IT security in the chain than the decentralized decision scenario. However, our results also exhibit that the total cost of IT security is disproportionately divided between the firms of the supply chain. In equilibrium, the leader not only commits first, it must also commit at a higher level than the follower. General comparison with the centralized case as well as the sensitivity of IT security investment of the leader/follower firm on key network parameters is also analyzed.