CRS – Legislation to Facilitate Cybersecurity Information Sharing: Economic Analysis. N. Eric Weiss, Specialist in Financial Economics. December 11, 2014.

“Data breaches, such as those at Target, Home Depot, Neiman Marcus, and JPMorgan Chase, affecting financial records of tens of millions of households seem to occur regularly. Companies typically respond by trying to increase their cybersecurity by hiring consultants and purchasing new hardware and software. Policy analysts have suggested that sharing information about these breaches could be an effective and inexpensive part of improving cybersecurity. Firms share information directly on an ad hoc basis and through private-sector, nonprofit organizations such as Information Sharing and Analysis Centers (ISACs) that can analyze and disseminate information. Firms sometimes do not share information because of perceived legal risks, such as violating privacy or antitrust laws, and economic incentives, such as giving useful information to their competitors. A firm that has been attacked might prefer to keep such information private out of a worry that its sales or stock price will fall. Further, there are no existing mechanisms to reward firms for sharing information. Their competitors can take advantage of the information, but not contribute in turn. This lack of reciprocity, called “free riding” by economists, may discourage firms from sharing. In addition, the information shared may not be applicable to those receiving it, or it might be difficult to apply. Because firms are reluctant to share information, other firms suffer from vulnerabilities that could be corrected. Further, by not sharing information about effective cybersecurity products and techniques, the size and quality of the market for cybersecurity products suffer. Some industry leaders call for mandatory sharing of information concerning attacks. Other experts advocate a strictly voluntary approach, because they believe it could impose fewer regulatory costs on businesses and cost less for taxpayers. Several bills have been introduced in the 113th Congress to encourage information sharing. H.R. 624, the Cyber Intelligence Sharing and Protection Act, and S. 2588, the Cybersecurity Information Sharing Act of 2014, aim to increase information sharing by directing the Department of Homeland Security and the Department of Justice to develop procedures for receiving and sharing information and by providing liability protection for private entities acting in good faith for a cybersecurity purpose. H.R. 624 passed the House, and S. 2588 was reported out of the Senate Select Committee on Intelligence.”