TY  - JOUR
AU  - Lakdawalla,Darius
AU  - Talley,Eric
TI  - Optimal Liability for Terrorism
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12578
PY  - 2006
Y2  - October 2006
UR  - http://www.nber.org/papers/w12578
L1  - http://www.nber.org/papers/w12578.pdf
N1  - Author contact info:
Darius N. Lakdawalla
Schaeffer Center for Health Policy and Economics
University of Southern California
3335 S. Figueroa St, Unit A
Los Angeles, CA 90089-7273


Los Angeles, CA 90
Tel: 213/740-6012
E-Mail: dlakdawa@healthpolicy.usc.edu

Eric Talley
UC, Berkeley
E-Mail: etalley@law.berkeley.edu
M3  - presented at "Economics of National Security Working Group", February 24, 2006
AB  - This paper analyzes the normative role for civil liability in aligning terrorism precaution incentives, when the perpetrators of terrorism are unreachable by courts or regulators. We consider the strategic interaction among targets, subsidiary victims, and terrorists within a sequential, game-theoretic model. The model reveals that, while an "optimal" liability regime indeed exists, its features appear at odds with conventional legal templates. For example, it frequently prescribes damages payments from seemingly unlikely defendants, directing them to seemingly unlikely plaintiffs. The challenge of introducing such a regime using existing tort law doctrines, therefore, is likely to be prohibitive. Instead, we argue, efficient precaution incentives may be best provided by alternative policy mechanisms, such as a mutual public insurance pool for potential targets of terrorism, coupled with direct compensation to victims of terrorist attacks.
ER  -