The Economic Impacts of Terrorist Attacks
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The Economic Impacts of Terrorist Attacks

Edited by Harry W. Richardson, Peter Gordon and James E. Moore II

Focussing on the economics of terrorism in the post 9/11 world, this book brings together original research based on the collaborative efforts of leading economists and planners. The authoritative and expert contributors use a variety of methodological approaches and apply them to different types of terrorist attacks (on airports, highways, seaports, electric power infrastructure, for example).
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Chapter 10: Designing Benefit–Cost Analyses for Homeland Security Policies

V. Kerry Smith and Daniel G. Hallstrom


10. Designing benefit–cost analyses for homeland security policies V. Kerry Smith and Daniel G. Hallstrom* INTRODUCTION The purpose of this chapter is to outline the methodological and empirical issues associated with developing benefit–cost analyses for homeland security policies. The 9/11 attack on the United States transformed domestic and international perceptions of the ability of the public sector in developed economies to provide a secure environment for daily living. Security at this very general level affects nearly every aspect of life, including of course those individual behaviors that influence market outcomes. When one includes the scope of the impact on non-market behaviors that are motivated by fear and anxiety, it is difficult to imagine how current policy initiatives can restore earlier perceptions about our security.1 For practical purposes, the change in the background environment for all private and public choices is probably best treated as irreversible. As a result, we argue that the task of measuring the net benefits provided by homeland security policies should not be treated as an effort to restore a pre-9/11 baseline. Homeland security policy can reduce risk and/or reduce consequences from terrorist activities. Because there is no single physical measure that allows the diverse possible terrorist events to be reduced to a single loss metric, the task of specifying the connection between policies and risk reductions is likely to be complex.2 Equally important, risk reduction can arise through public protection, self-protection or some combination of these two...

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