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Insurance, self-protection, and the economics of terrorism

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  • Lakdawalla, Darius
  • Zanjani, George

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.
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Suggested Citation

  • Lakdawalla, Darius & Zanjani, George, 2005. "Insurance, self-protection, and the economics of terrorism," Journal of Public Economics, Elsevier, vol. 89(9-10), pages 1891-1905, September.
    • Handle: RePEc:eee:pubeco:v:89:y:2005:i:9-10:p:1891-1905
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