The economics of cybersecurity: investment, market failures, and policy implications for the digital economy

Abstract

Cybersecurity has emerged as one of the most consequential economic challenges of the digital age, yet it remains systematically underanalysed within mainstream economic scholarship. This article examines cybersecurity through the lens of economic theory, investigating the market failures that lead to chronic underinvestment in digital security, the macroeconomic costs of cyberattacks, and the policy instruments available to governments seeking to improve societal cybersecurity outcomes. Drawing on industrial organisation theory, public goods economics, and the economics of information asymmetry, the study analyses why private markets consistently fail to produce socially optimal levels of cybersecurity investment. The paper further quantifies the macroeconomic impact of cybercrime, drawing on empirical evidence from OECD economies and emerging markets, and examines sectoral vulnerabilities in critical infrastructure, financial services, and the digital platform economy. Special attention is paid to the economic dynamics of ransomware markets, cyber insurance, and the labour market for cybersecurity professionals. The article concludes by proposing a policy framework grounded in regulatory economics, international coordination theory, and behavioural economics, designed to correct market failures and foster a more resilient digital economic environment. The analysis contributes to a growing interdisciplinary literature that situates cybersecurity within the broader context of digital economy governance and economic security policy.