Edward A. Morse

Market Price Effects of Data Security Breaches

ABSTRACT This study examines the impact of reported breaches in computer security using event study analysis. We use the event-study methodology to measure the magnitude of the effect of data security breach events on the behavior of stock markets. Our data come from security breaches spanning a ten-year period and involving various industries. The findings of the study suggest that there exist abnormal negative stock price returns following the announcement of a breach. Such abnormal negative returns persist over the next several years. Moreover, the source of data breach may moderate the price effect; the market tends to punish more heavily those compromises that could have been avoided with reasonable precautions by the breached company.

Extraterritorial Internet Gambling: Legal Challenges and Policy Options

Casino gambling in the USA is highly regulated. Internet gambling operations circumvent domestic regulatory systems designed to accomplish various policy goals, including protecting minors, enforcing tax laws and preventing money laundering. The absence of international cooperation and legal options for restricting access to internet gambling appear limited to targeting domestic aspects of the internet business model, including advertising and financial services. However, financial intermediaries provide a constantly moving target for regulators. Willingness to pursue more invasive policy options may depend on what social science research reveals about the social harms of internet gambling, as well as security threats from unregulated cash flows.

Private Ordering in Light of the Law: Achieving Consumer Protection Through Payment Card Security Measures

A private ordering regime has developed within the payment card industry to define appropriate security practices and to monitor compliance by network participants. Market demands for trustworthy systems upon which consumers and merchants could rely provide incentives for security, which the card brands supplement by privately designed fines and sanctions imposed through contract. Although private ordering has functioned sufficiently well to make payment cards a trusted payment method, the system is not completely secure, as data security breaches continue to occur. This is not surprising, as complete security is not a feasible goal. Nevertheless, some have questioned whether additional government regulation is necessary to protect consumers. This article explores the effects of legal intervention, including disclosure laws, on this private ordering system. It questions whether additional government intervention would enhance consumer welfare, particularly when consumers will likely bear the ultimate costs of such regulation. It recommends modifications in breach disclosure laws to eliminate individual notice requirements in favor of public notices, which may reduce costs and enhance consumer welfare. It challenges “bounty” enforcement regimes, such as FACTA, which offer little marginal benefit to consumers while substantially raising costs. It identifies practical and political problems presented by the different capacities of large and small firms to bear security costs, which are not easily solved under either private ordering or legislative approaches. Finally, it offers a set of policy issues as a possible agenda for consideration by policy makers and researchers in this domain.

Sound Science and Trade Barriers: Democracy, Autonomy, and the Limits of the SPS Agreement

This article examines the framework of the Agreement for Sanitary and Phytosanitary Measures (SPS Agreement) and assesses its impacts on domestic autonomy and authority in matters of food and environmental safety. The direct impact of the SPS Agreement appears quite limited, as only a few cases have arisen. The Agreement has not proven to be a pervasive tool for the purpose of overturning domestic policies on food or environmental safety, despite the fact that the WTO Panel or Appellate Body decisions have found that domestic measures violate the terms of the SPS Agreement. Limited enforcement mechanisms provide protection for domestic policies, though perhaps at the price of trade sanctions. Moreover, theoretical literature suggests that the SPS Agreement may indeed enhance democratic values by discounting the influence of special interests and retaining ultimate authority for enforcement within the discretion of domestic government. Important issues nevertheless remain, including the role of the precautionary principle in policymaking and the means to address normative values, such as developing moral consensus on animal welfare, in trade matters. Trade has proven to be a catalyst for change and cooperative development in this context.

Regulation of Online Gambling

This chapter addresses the regulatory challenges presented by Internet gambling. As will be explored below, current U.S. laws leverage federal power to limit financing and other logistical support for Internet gambling enterprises based abroad, thereby injecting some friction into Internet-based business models but hardly stopping their operations. However, federal enforcement policy changes announced in 2011 have created new opportunities for firms seeking to tap the U.S. gambling market. Three U.S. states now permit some forms of domestic Internet gambling operations, although limited to residents of those states. Meanwhile, new forms of gaming, such as fantasy sports leagues, are pushing regulatory boundaries.Part II provides a brief overview of the legal foundations for regulation in the U.S. federal system, in which authority is divided between states and the federal government, with the federal government primarily addressing interstate matters. Part III provides an overview of significant federal legislation affecting interstate operations. Part IV discusses state efforts to regulate Internet gambling in Nevada, Delaware, and New Jersey, as well as some efforts in other states to thwart Internet operations. Finally, Part V addresses regulatory concerns that are rooted in free trade considerations, as exemplified in the enforcement efforts of EU member states and in World Trade Organization proceedings against the United States.