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Aviation security and terrorism: a review of the economic issues

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  • Cletus C. Coughlin
  • Jeffrey P. Cohen
  • Sarosh R. Khan

Abstract

Following the terrorist attacks on September 11, 2001, the passage of the Aviation and Transportation Act mandated a substantial increase in resources devoted to aviation security. This paper summarizes the specific changes stemming from this legislation. In addition, the paper examines the economic issues underlying the regulation and provision of aviation security. The fact that security at one airport can affect the well being of those at other airports and elsewhere, an example of a network externality (spillover), provides an economic justification for governmental involvement in aviation security. A fundamental question is whether the federal role should be restricted to setting and monitoring security standards or whether the role should also include the financing and implementation of security. A controversial change is that the federal government has assumed responsibility from the airlines and airports for the actual provision of aviation security. Proponents of this change argue that, relative to private provision, public provision reduces the incentives to reduce quality through cost reductions. On the other hand, a public agency might not provide security services efficiently because it can operate in a more-or-less monopolistic way. Furthermore, a public agency might provide an excessive amount of security and incur unnecessary expenses because it is likely to be judged on its security record and not on all the attributes encompassed by air transportation services for consumers. Thus, economic theory does not provide a clear answer to what is likely to be a continuing source of controversy - the appropriate scope of governmental involvement in aviation security.

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Bibliographic Info

Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2002-009.

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Date of creation: 2002
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Handle: RePEc:fip:fedlwp:2002-009

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Keywords: Economic conditions ; War - Economic aspects;

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  1. Oliver Hart & Andrei Shleifer & Robert Vishny, 1996. "The Proper Scope of Government: Theory and an Application to Prisons," Harvard Institute of Economic Research Working Papers 1778, Harvard - Institute of Economic Research.
  2. Howard Kunreuther & Geoffrey Heal, 2002. "Interdependent Security: The Case of Identical Agents," NBER Working Papers 8871, National Bureau of Economic Research, Inc.
  3. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
  4. Edward L. Glaeser, 2001. "Public Ownership in the American City," NBER Working Papers 8613, National Bureau of Economic Research, Inc.
  5. Edward L. Glaeser, 2001. "Public Ownership in the American City," Harvard Institute of Economic Research Working Papers 1930, Harvard - Institute of Economic Research.
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Cited by:
  1. Friedrich Schneider & Tilman Brück & Daniel Meierrieks, 2010. "The Economics of Terrorism and Counter-Terrorism: A Survey (Part I)," Discussion Papers of DIW Berlin 1049, DIW Berlin, German Institute for Economic Research.
  2. Gkritza, Konstantina & Niemeier, Debbie & Mannering, Fred, 2006. "Airport security screening and changing passenger satisfaction: An exploratory assessment," Journal of Air Transport Management, Elsevier, vol. 12(5), pages 213-219.
  3. Cohen, Jeffrey P. & Morrison Paul, Catherine J., 2003. "Airport infrastructure spillovers in a network system," Journal of Urban Economics, Elsevier, vol. 54(3), pages 459-473, November.

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