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Insurance, Self-Protection, and the Economics of Terrorism

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  • Darius Lakdawalla
  • George Zanjani

Abstract

This paper investigates the rationale for government intervention in the market for terrorism insurance, focusing on the externalities associated with self-protection. Self-protection by one target encourages terrorists to substitute towards less fortified targets. Investments in self- protection thus have negative external effects in the presence of rational terrorists. Government subsidies for terror insurance can discourage self-protection and limit the inefficiencies associated with these and other types of negative externalities. They may also serve as a complement to a policy of publicly provided protection.

Suggested Citation

  • Darius Lakdawalla & George Zanjani, 2002. "Insurance, Self-Protection, and the Economics of Terrorism," NBER Working Papers 9215, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:9215
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    • H0 - Public Economics - - General

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