Electrical Engineering
      and Computer Sciences

Electrical Engineering and Computer Sciences

COLLEGE OF ENGINEERING

UC Berkeley

Design of Network Architectures: Role of Game Theory and Economics

Nikhil Gopinath Shetty

EECS Department
University of California, Berkeley
Technical Report No. UCB/EECS-2010-91
June 4, 2010

http://www.eecs.berkeley.edu/Pubs/TechRpts/2010/EECS-2010-91.pdf

First, this thesis studies user incentives for the adoption of femtocells or home base stations and their resulting impact on network operator revenues. The thesis develops a model of a monopolist network operator who offers the option of macrocell access or macro+femtocell access to a population of users who possess linear valuations for the data throughput. The study compares the revenues from two possible spectrum schemes for femtocell deployment; the split spectrum scheme, where femtocells and macrocells operate on different frequencies and do not interfere, and the common spectrum scheme, where they operate on the same frequencies (partially or fully) and interfere. The results suggest that the common spectrum scheme that creates heavy interference for the macrocell still performs comparably to the split spectrum scheme for revenue maximization. This suggests that the common spectrum scheme with good interference management may be the pathway to better femtocell adoption. Second, the thesis investigates the impact of the provision of two classes of service in the Internet on the surplus distribution between users and providers. The study considers multiple competing Internet Service Providers (ISPs) who offer network access to a fixed user base, consisting of end-users who differ in their quality requirements and willingness to pay for the access. User-ISP interactions are modeled as a game in which each ISP makes capacity and pricing decisions to maximize his pro ts and the end-users only decide which service to buy (if any) and from which ISP. The model provides pricing for networks with single- and two-service classes for any number of competing ISPs. The results indicate that multiple service classes are socially desirable, but could be blocked due to the unfavorable distributional consequences that it in flicts on the existing Internet users. The research proposes a simple regulatory tool to alleviate the political economic constraints and thus make multiple service classes in the Internet feasible. The third topic is a problem involving missing markets for cyber-security insurance. The study explains why insurance markets for Internet security fail to take off due to a number of factors including information asymmetry, efficiency losses due to network externalities and competition. The interdependent nature of security on the Internet causes a negative externality that results in under-investment in technology-based defenses. The research investigates how competitive cyber-insurers affect network security and user welfare. The model explores a general setting, where the network is populated by identical users with arbitrary risk-aversion and network security is costly for the users. The user's probability to incur damage (from being attacked) depends on both his security and the network security. First, the model considers cyber-insurers who cannot observe (and thus, affect) individual user security. This asymmetric information causes moral hazard. If an equilibrium exists, network security is always worse relative to the no-insurance equilibrium. Though user utility may rise due to a coverage of risks, total costs to society go up due to higher network insecurity. Second, the study considers insurers with full information about their users' security. Here, user security is perfectly enforceable (zero cost). Each insurance contract stipulates the required user security and covers the entire user damage. Still, for a significant range of parameters, network security worsens relative to the no-insurance equilibrium. Thus, although cyber-insurance improves user welfare, in general, competitive cyber-insurers may fail to improve network security.

Advisor: Jean Walrand


BibTeX citation:

@phdthesis{Shetty:EECS-2010-91,
    Author = {Shetty, Nikhil Gopinath},
    Title = {Design of Network Architectures: Role of Game Theory and Economics},
    School = {EECS Department, University of California, Berkeley},
    Year = {2010},
    Month = {Jun},
    URL = {http://www.eecs.berkeley.edu/Pubs/TechRpts/2010/EECS-2010-91.html},
    Number = {UCB/EECS-2010-91},
    Abstract = {First, this thesis studies user incentives for the adoption of femtocells or home base stations
and their resulting impact on network operator revenues. The thesis develops a model of
a monopolist network operator who offers the option of macrocell access or macro+femtocell
access to a population of users who possess linear valuations for the data throughput. The
study compares the revenues from two possible spectrum schemes for femtocell deployment;
the split spectrum scheme, where femtocells and macrocells operate on different frequencies
and do not interfere, and the common spectrum scheme, where they operate on the same
frequencies (partially or fully) and interfere. The results suggest that the common spectrum
scheme that creates heavy interference for the macrocell still performs comparably to
the split spectrum scheme for revenue maximization. This suggests that the common spectrum
scheme with good interference management may be the pathway to better femtocell
adoption.
Second, the thesis investigates the impact of the provision of two classes of service in
the Internet on the surplus distribution between users and providers. The study considers
multiple competing Internet Service Providers (ISPs) who offer network access to a fixed
user base, consisting of end-users who differ in their quality requirements and willingness to
pay for the access. User-ISP interactions are modeled as a game in which each ISP makes
capacity and pricing decisions to maximize his prots and the end-users only decide which
service to buy (if any) and from which ISP. The model provides pricing for networks with
single- and two-service classes for any number of competing ISPs. The results indicate that
multiple service classes are socially desirable, but could be blocked due to the unfavorable
distributional consequences that it inflicts on the existing Internet users. The research proposes
a simple regulatory tool to alleviate the political economic constraints and thus make
multiple service classes in the Internet feasible.
The third topic is a problem involving missing markets for cyber-security insurance. The
study explains why insurance markets for Internet security fail to take off due to a number
of factors including information asymmetry, efficiency losses due to network externalities
and competition. The interdependent nature of security on the Internet causes a negative
externality that results in under-investment in technology-based defenses. The research
investigates how competitive cyber-insurers affect network security and user welfare. The
model explores a general setting, where the network is populated by identical users with
arbitrary risk-aversion and network security is costly for the users. The user's probability to
incur damage (from being attacked) depends on both his security and the network security.
First, the model considers cyber-insurers who cannot observe (and thus, affect) individual
user security. This asymmetric information causes moral hazard. If an equilibrium exists,
network security is always worse relative to the no-insurance equilibrium. Though user
utility may rise due to a coverage of risks, total costs to society go up due to higher network
insecurity. Second, the study considers insurers with full information about their users'
security. Here, user security is perfectly enforceable (zero cost). Each insurance contract
stipulates the required user security and covers the entire user damage. Still, for a significant 
range of parameters, network security worsens relative to the no-insurance equilibrium. Thus,
although cyber-insurance improves user welfare, in general, competitive cyber-insurers may
fail to improve network security.}
}

EndNote citation:

%0 Thesis
%A Shetty, Nikhil Gopinath
%T Design of Network Architectures: Role of Game Theory and Economics
%I EECS Department, University of California, Berkeley
%D 2010
%8 June 4
%@ UCB/EECS-2010-91
%U http://www.eecs.berkeley.edu/Pubs/TechRpts/2010/EECS-2010-91.html
%F Shetty:EECS-2010-91