Economics of Malware

Malicious software, or malware for short, has become a critical security threat to all who rely on the Internet for their daily business, whether they are large organisations or home users. While originating in criminal behaviour, the magnitude and impact of the malware threat are also influenced by the decisions and behaviour of legitimate market players such as Internet Service Providers (ISPs), software vendors, e-commerce companies, hardware manufacturers, registrars and, last but not least, end users. This working paper reports on qualitative empirical research into the incentives of market players when dealing with malware. The results indicate a number of market-based incentive mechanisms that contribute to enhanced security but also other instances in which decentralised actions may lead to sub-optimal outcomes - i.e. where significant externalities emerge.