Narrow Results

Supplementing the literature on information sharing between firms, the paper seeks to understand information sharing between hackers and how firms defend against increasingly sophisticated hackers. Each hacker seeks financial gain, mutually beneficial information exchange, and reputation gain. The two hackers’ attack and the firm’s defense are inverse U shaped in each other. A hacker shifts from attack to information sharing when attack is costly or the firm’s defense is cheap. The first hacker’s information sharing increases as both hackers focus increasingly on reputation gain. The two hackers largely increase their information sharing, with two exceptions. The second hacker’s attack is deterred by the first hacker’s reputation gain. The firm’s defense against the second hacker increases in the second hacker’s unit cost, decreases in the second hacker’s information sharing effectiveness and utilization of joint sharing, and also decreases in both hackers’ reputation gain. Policy and managerial implications are provided.

In this chapter, we propose the structural model in terms of the Stair Tree model and barrier option to evaluate the fair deposit insurance premium in accordance with the constraints of the deposit insurance contracts and the consideration of bankruptcy costs. First, we show that the deposit insurance model in Brockman and Turle (2003) is a special case of our model. Second, the simulation results suggest that insurers should adopt a forbearance policy instead of a strict policy for closure regulation to avoid losses from bankruptcy costs. An appropriate deposit insurance premium can alleviate potential moral hazard problems caused by a forbearance policy. Our simulation results can be used as reference in risk management for individual banks and for the Federal Deposit Insurance Corporation (FDIC).