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Patch management is a crucial component of information security management. An important problem within this context from a vendor's perspective is to determine how to release patches to fix vulnerabilities in its software. From a firm's perspective, the issue is how to update vulnerable systems with available patches. In this paper, we develop a game-theoretic model to study the strategic interaction between a vendor and a firm in balancing the costs and benefits of patch management. Our objective is to examine the consequences of time-driven release and update policies. We first study a centralized system in a benchmark scenario to find the socially optimal time-driven patch management. We show that the social loss is minimized when patch-release and update cycles are synchronized. Next, we consider a decentralized system in which the vendor determines its patch-release policy and the firm selects its patch-update policy in a Stackelberg framework, assuming that release and update policies are either time driven or event driven. We develop a sufficient condition that guarantees that a time-driven release by the vendor and a time-driven update by the firm is the equilibrium outcome for patch management. However, in this equilibrium, the patch-update cycle of the firm may not be synchronized with the patch-release cycle of the vendor, making it impossible to achieve the socially optimal patch management in the decentralized system. Therefore, we next examine cost sharing and liability as possible coordination mechanisms. Our analysis shows that cost sharing itself may achieve synchronization and social optimality. However, liability by itself cannot achieve social optimality unless patch-release and update cycles are already synchronized without introducing any liability. Our results also demonstrate that cost sharing and liability neither complement nor substitute each other. Finally, we show that an incentive-compatible contract on cost sharing can be designed to achieve coordination in case of information asymmetry.information technology security, liability, cost sharing, patch management, coordination schemes

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The importance of effective management of IT security from an economic perspective increased in recent years because of the increasing frequency and cost of security breaches. Each security breach incurs monetary damage, corporate liability, and loss of credibility. This article presents four important elements that every IT security manager should consider while managing the security function from an economic perspective. The four elements are: estimation of security breach cost, a risk management approach, cost effective technology configuration, and value from deployment of multiple technologies.

P roper configuration of security technologies is critical to balance the needs for access and protection of information. The common practice of using a layered security architecture that has multiple technologies amplifies the need for proper configuration because the configuration decision about one security technology has ramifications for the configuration decisions about others. Furthermore, security technologies rely on each other for their operations, thereby affecting each other's contribution. In this paper we study configuration of and interaction between a firewall and intrusion detection systems (IDS). We show that deploying a technology, whether it is the firewall or the IDS, could hurt the firm if the configuration is not optimized for the firm's environment. A more serious consequence of deploying the two technologies with suboptimal configurations is that even if the firm could benefit when each is deployed alone, the firm could be hurt by deploying both. Configuring the IDS and the firewall optimally eliminates the conflict between them, ensuring that if the firm benefits from deploying each of these technologies when deployed alone, it will always benefit from deploying both. When optimally configured, we find that these technologies complement or substitute each other. Furthermore, we find that while the optimal configuration of an IDS does not change whether it is deployed alone or together with a firewall, the optimal configuration of a firewall has a lower detection rate (i.e., allowing more access) when it is deployed with an IDS than when deployed alone. Our results highlight the complex interactions between firewall and IDS technologies when they are used together in a security architecture, and, hence, the need for proper configuration to benefit from these technologies.