The Economic Costs and Consequences of Terrorism
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The Economic Costs and Consequences of Terrorism

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

This landmark book covers a range of issues concerning the consequences of terrorist attacks. Beginning with a discussion of new policies and strategies, it then delves into specific areas of concern, modeling a range of possible scenarios and ways to mitigate or pre-empt damages.
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Chapter 9: The Economic Cost of Disasters: Permanent or Ephemeral?

Matthew P. Drennan


Matthew P. Drennan The general issue addressed in this chapter is whether a terrorist attack or a natural disaster with significant death and destruction will have long-term negative effects upon the local economy suffering such an attack. The specific case addressed here is the pre- and post-September 11 economy of New York City and the New York region. Terrorist attacks are only one type of the adverse shocks that have beset cities. More common are wars, civil disturbances and natural disasters such as Hurricane Katrina and the consequent massive flooding of New Orleans, and the tsunami that devastated some parts of South-East Asia in 2004. If a shock is defined as a sudden, unexpected, negative impact upon a local economy, then the negative impact upon some urban areas of industrial decline is not a shock. The adverse effects develop and accumulate slowly, often over decades. There is a simple economic connection between shocks and industrial decline. If a shock, natural (flood, earthquake) or unnatural (terrorism), destroys a nontrivial part of the capital stock of an urban area, then recovery, manifested by rebuilding and replacement, depends upon the expected rate of return of the new capital in the old location. If that is below the expected rate of return in other places, then the rebuilding and replacement will not occur, at least not by the unsubsidized private sector. The short, unqualified answer as to whether a shock to an urban economy has a permanent...

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