On systemic risk in the cloud computing model

The major benefits of the emerging cloud computing infrastructure include elimination of the fixed cost and reduction in the marginal cost for the users due to the economy of scale and dynamic resource sharing. This paper argues that these unquestionable economic benefits of dynamic resource sharing are inherently associated with systemic risks and drawbacks. This possibility necessitates shift in cloud architecture design and operation paradigm from maximizing the economic benefits to managing and optimization of the inherent systemic risk/benefit tradeoffs. This paper is a first step towards exposure and quantification of inherent tradeoffs involving system economic efficiency and systemic risk of cascading overload in the cloud model of shared resources.