NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Insurance, Self-Protection, and the Economics of Terrorism

Darius Lakdawalla, George Zanjani

NBER Working Paper No. 9215*
Issued in September 2002
NBER Program(s):   HE    PE

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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.

*Published: Lakdawalla, Darius and George Zanjani. "Insurance, Self-Protection, And The Economics Of Terrorism," Journal of Public Economics, 2005, v89(9-10,Sep), 1891-1905.

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