Abstract
Software vulnerability disclosure has become a critical area of concern for policymakers. Traditionally, a Computer Emergency Response Team (CERT) acts as an infomediary between benign identifiers (who voluntarily
report vulnerability information) and software users. After verifying a reported vulnerability, CERT sends out
a public advisory so that users can safeguard their systems against potential exploits. Lately, firms such as iDefense have been implementing a new market-based approach for vulnerability information. The marketbased infomediary provides monetary rewards to identifiers for each vulnerability reported. The infomediary then shares this information with its client base. Using this information, clients protect themselves against potential attacks that exploit those specific vulnerabilities.
The key question addressed in our paper is whether movement toward such a market-based mechanism for
vulnerability disclosure leads to a better social outcome. Our analysis demonstrates that an active unregulated
market-based mechanism for vulnerabilities almost always underperforms a passive CERT-type mechanism.
This counterintuitive result is attributed to the market-based infomediary’s incentive to leak the vulnerability
information inappropriately. If a profit-maximizing firm is not allowed to (or chooses not to) leak vulnerability
information, we find that social welfare improves. Even a regulated market-based mechanism performs better
than a CERT-type one, but only under certain conditions. Finally, we extend our analysis and show that a proposed
mechanism—federally funded social planner—always performs better than a market-based mechanism.
