Research Projects

Do Terrorism and Civil Liability Mix?

Principal Investigators: Darius Lakdawalla and Eric Talley

In this study, we consider how civil liability might complement public and private terrorism insurance and counterterrorism investments as a way to moderate and distribute the risk of terrorist attacks. This question is a difficult one in light of the fact that direct liability (of terrorists or sponsoring groups) is unlikely to be a practical tool for most plaintiffs. Rather, liability is likely to function most prominently as a source of redistribution between affected targets and victims, intended to induce beneficial levels of precaution at the onset. We explore the appropriate role of liability by subdividing it into two components. First, assuming that the state must use liability to allocate risk, we consider how to best use liability to align the incentives of targets, victims, and others. Second, we consider whether such a system best serves the interests of society, in light of its inherent tradeoffs and complexities, and whether it adds value above and beyond other forms of private and social insurance. We find that while it is possible to design a tort liability system in a way that comes close to aligning incentives efficiently, the practical administration of such a system would likely be difficult, and most of its attributes could be replicated (perhaps more efficiently) with a prudently designed system of public and private insurance.