(1)

(2)

(3)

(4)

Percent Externality Cost

Private Loss (i.e., costs) from a Successful Cyber Security Breach

Optimal

Cyber security

Investment Based on Private Costs

Optimal Cyber security Investment Based on Total Social (Private + Externality) Costs

Percent Underinvestment by Failing to Consider Externalities

0%

$400,000

$60,000

$60,000

0%

20%

$400,000

$60,000

$75,271

20.29%

40%

$400,000

$60,000

$89,315

32.82%

60%

$400,000

$60,000

$102,386

41.40%

80%

$400,000

$60,000

$114,663

47.67%

100%

$400,000

$60,000

$126,274

52.48%

120%

$400,000

$60,000

$137,318

56.31%

140%

$400,000

$60,000

$147,871

59.42%

160%

$400,000

$60,000

$157,992

62.02%

180%

$400,000

$60,000

$167,731

64.23%

200%

$400,000

$60,000

$177,128

66.13%