Circumventing Circumvention: An Economic Analysis of the Role of Education and Enforcement

The role of education and enforcement in ensuring compliance with a law or policy has been debated for more than a century now. We reopen this debate in the context of security circumvention by employees, currently a leading cause of information security and privacy breaches. Drawing on prior literature, we develop a microeconomic framework that captures employees’ circumventing behavior in the face of security controls. This allows us to obtain interesting insights that have implications for how an organization should employ anticircumvention measures. First, unless circumvention is rampant, education and enforcement often work better in combination, and not in isolation. Second, there are incentives for an organization to tolerate circumvention to an extent, even when education and enforcement are cheap. Finally, education and enforcement may be strategic complements or substitutes in different parts of the parameter space. When they are complements, if a change in cost parameters compels the organization to increase one, it would also require an increase in the other in lockstep. In contrast, when they are substitutes, an increase in one is associated with a decrease in the other. This paper was accepted by Chris Forman, information systems.

Strategic Complements or Substitutes? The Case of Adopting Health Information Technology by U.S. Hospitals

This paper explores the adoption choice of electronic medical records by U.S. hospitals, which could exhibit strategic complements or substitutes. I find complementarities in adoption through a reducedform analysis with instruments for unobserved market characteristics. I further develop a dynamic oligopoly model to allow for strategic timing incentives that are missing in the static model. Adopting a dominant local vendor could increase perperiod profits from adoption by 9.2% over choosing a marginal vendor. A counterfactual analysis suggests an incentive program rewarding coordination, not just adoption, is more effective in achieving interoperability, especially before the widespread adoption of the technology.

Macrodynamic Modeling of Innovation Equilibria and Traps

We study the interplay between the decision of firms to innovate and human capital. Based on a dynamic evolutionary model, we show that in the presence of a high stock of human capital, an advanced economy can remain caught in an “innovation trap”. Following the literature on endogenous growth, R&D investments and human capital are modeled as strategic complements. Skilled workers increase productivity and enjoy a wage premium if they are employed in the R&D sector, while they receive the same wage as unskilled workers if they are employed in the production sector. We model the evolutionary dynamics of the share of innovative firms and human capital to determine the conditions under which an economy converges to a high, low or mixed state of innovation.

Spillovers and strategic interaction in immigration policies

Asylum policies are interdependent across countries: policy choices in one country can affect refugee flows into neighbouring countries and may provoke policy changes there, in an a priori unknown direction. We formulate a dynamic model of refugees’ location choices and of the strategic interaction among destinations that we fit to Syrian refugee migration to Europe. We find that south and southeastern European countries view recognition rates as strategic substitutes, whereas the same policies can be strategic complements in northern Europe. Our findings imply that regression frameworks which use cross-country variation to estimate the effects of recognition rates on immigration underestimate (overestimate) the effect if this policy is a strategic substitute (complement).