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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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    References listed on IDEAS

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    Cited by:

    1. 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).
    2. Brennan, Timothy J. & Kousky, Carolyn & Macauley, Molly K., 2009. "More Than a Wing and a Prayer: Government Indemnification of the Commercial Space Launch Industry," Discussion Papers dp-09-38, Resources For the Future.
    3. Vicki Bier & Santiago Oliveros & Larry Samuelson, 2007. "Choosing What to Protect: Strategic Defensive Allocation against an Unknown Attacker," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 9(4), pages 563-587, August.
    4. Christopher Cotton & Cheng Li, 2015. "Profiling, Screening, and Criminal Recruitment," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 17(6), pages 964-985, December.
    5. Allen, W. David, 2013. "Self-protection against crime victimization: Theory and evidence from university campuses," International Review of Law and Economics, Elsevier, vol. 34(C), pages 21-33.
    6. repec:eee:eecrev:v:101:y:2018:i:c:p:230-249 is not listed on IDEAS
    7. Tim Lohse & Julio R. Robledo & Ulrich Schmidt, 2012. "Self‐Insurance and Self‐Protection as Public Goods," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 79(1), pages 57-76, March.
    8. Bernhardt, Dan & Polborn, Mattias K., 2010. "Non-convexities and the gains from concealing defenses from committed terrorists," Economics Letters, Elsevier, vol. 107(1), pages 52-54, April.
    9. Meyer Sunniva F., 2011. "Preventing Mass Killings: Determining the Optimal Allocation of Security Resources between Crowded Targets," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 17(1), pages 1-37, September.
    10. repec:eee:regeco:v:70:y:2018:i:c:p:330-351 is not listed on IDEAS
    11. Darius Lakdawalla & Eric Talley, 2006. "Optimal Liability for Terrorism," NBER Working Papers 12578, National Bureau of Economic Research, Inc.
    12. Erwann Michel-Kerjan & Burkhard Pedell, 2006. "How Does the Corporate World Cope with Mega-Terrorism? Puzzling Evidence from Terrorism Insurance Markets," Journal of Applied Corporate Finance, Morgan Stanley, vol. 18(4), pages 61-75.
    13. Mustafa Mete, 2016. "The Effects of Terrorist Activities on Development in the Southeastern Region of Turkey-Theoretical and Empirical Application," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 8(4), pages 229-245, April.
    14. Claudia Schwirplies, 2015. "Adaptation vs. climate protection: Responses to climate change and policy preferences of individuals in China, Germany, and the USA," MAGKS Papers on Economics 201502, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    15. Jun Zhuang & Vicki M. Bier, 2007. "Balancing Terrorism and Natural Disasters---Defensive Strategy with Endogenous Attacker Effort," Operations Research, INFORMS, vol. 55(5), pages 976-991, October.
    16. Anthony M. Barrett, 2010. "Cost Effectiveness of On-Site Chlorine Generation for Chlorine Truck Attack Prevention," Decision Analysis, INFORMS, vol. 7(4), pages 366-377, December.
    17. 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 2009-10, Faculty of Economics and Statistics, University of Innsbruck.
    18. Andrés Solimano, 2003. "Prevention and Insurance of Conflict and Terrorism: Issues and Evidence for Latin America," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 40(121), pages 617-625.
    19. Adam Nowak & Juan Sayago-Gomez, 2017. "Homeowner Preferences after September 11th, a Microdata Approach," Working Papers 17-17, Department of Economics, West Virginia University.
    20. Geoffrey Heal & Howard Kunreuther, 2003. "You Only Die Once: Managing Discrete Interdependent Risks," NBER Working Papers 9885, National Bureau of Economic Research, Inc.
    21. Biener, Christian & Eling, Martin & Landmann, Andreas & Pradhan, Shailee, 2018. "Can group incentives alleviate moral hazard? The role of pro-social preferences," European Economic Review, Elsevier, vol. 101(C), pages 230-249.
    22. Gabriella Berloffa & Agar Brugiavini & Dino Rizzi, 2006. "Health, Welfare and Inequality," Working Papers 2006_41, Department of Economics, University of Venice "Ca' Foscari".
    23. Paan Jindapon & William S. Neilson, 2009. "The Impact Of Societal Risk Attitudes On Terrorism And Counterterrorism," Economics and Politics, Wiley Blackwell, vol. 21(3), pages 433-451, November.
    24. Grislain-Letrémy, Céline, 2012. "Assurance et prévention des catastrophes naturelles et technologiques," Economics Thesis from University Paris Dauphine, Paris Dauphine University, number 123456789/9073 edited by Villeneuve, Bertrand.

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    JEL classification:

    • H0 - Public Economics - - General

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