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Insurance, Self-Protection, and the Economics of Terrorism

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Darius Lakdawalla
George Zanjani

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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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9215.

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Date of creation: Sep 2002
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Handle: RePEc:nbr:nberwo:9215

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H0 - Public Economics - - General

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  1. Geoffrey Heal & Howard Kunreuther, 2003. "You Only Die Once: Managing Discrete Interdependent Risks," NBER Working Papers 9885, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Brunet, Alexia, 2005. "Protecting Our Homeland: Incorporating Vulnerability to Terrorism in State Homeland Security Grants," 2005 Annual meeting, July 24-27, Providence, RI 19380, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  3. Vicki Bier & Santiago Oliveros & Larry Samuelson, 2006. "Choosing What to Protect: Strategic Defensive Allocation against an Unknown Attacker," Levine's Bibliography 321307000000000158, UCLA Department of Economics. [Downloadable!]
    Other versions:
  4. Erwann Michel-Kerjan & Paul A. Raschky & Howard C. Kunreuther, 2009. "Corporate Demand for Insurance: An Empirical Analysis of the U.S. Market for Catastrophe and Non-Catastrophe Risks," Working Papers hal-00372420_v1, HAL. [Downloadable!]
    Other versions:
  5. Andrés Solimano, 2003. "Prevention and Insurance of Conflict and Terrorism: Issues and Evidence for Latin America," Cuadernos de Economía (Latin American Journal of Economics), Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 40(121), pages 617-625. [Downloadable!]
  6. Erwann Michel-Kerjan & Burkhard Pedell, 2007. "How Does the Corporate World Cope with Mega-Terrorism? Puzzling Evidence from Terrorism Insurance Markets," Working Papers hal-00243051_v1, HAL. [Downloadable!]
  7. Darius Lakdawalla & Eric Talley, 2006. "Optimal Liability for Terrorism," NBER Working Papers 12578, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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