Working Paper: NBER ID: w9215
Authors: 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.
Keywords: No keywords provided
JEL Codes: H0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| self-protection investments (D14) | redirect attacks towards less fortified targets (Y50) |
| self-protection investments (D14) | increase probability of attack for others (Y50) |
| government subsidies for terrorism insurance (H84) | dissuade self-protection (F52) |
| self-protection levels (D18) | terrorist resource allocation (H56) |
| self-protection investments (D14) | negative externalities (D62) |
| self-protection investments (D14) | overall risk landscape (D81) |
| self-protection (F52) | substitution effects (D11) |
| self-protection (F52) | wealth effects (E21) |