Security Standardization for Social Welfare in the Presence of Unverifiable Control
Standard makers in both private and public sectors have been increasingly mandating security standards upon organizations to protect organizational digital assets. A major issue in security standardization is that standards often cannot regulate all possible security efforts by the standard maker because some efforts are unverifiable by nature. This paper studies from an analytical perspective how a standard maker should design the standard using a verifiable security control in the presence of another related unverifiable one. We compare it with two benchmark standards; naïve-standard which refers to the standard maker who ignores the existence of the unverifiable control, and complete-information standard which refers to the maker sets standards on both controls. Optimal standard and benchmark standard depend critically on how the two controls are configured. Under parallel configuration, the existence of the unverifiable control induces the policy maker to set a higher standard (the complete-information standard is optimal); under serial configuration, a lower standard is applied (neither benchmark works). Under best-shot configuration and if the verifiable control is more cost-efficient, the existence of the unverifiable control has no impact on the optimal standard (the naïve standard is optimal).
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