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.
This report is part of the RAND Corporation External publication series. Many RAND studies are published in peer-reviewed scholarly journals, as chapters in commercial books, or as documents published by other organizations.
Our mission to help improve policy and decisionmaking through research and analysis is enabled through our core values of quality and objectivity and our unwavering commitment to the highest level of integrity and ethical behavior. To help ensure our research and analysis are rigorous, objective, and nonpartisan, we subject our research publications to a robust and exacting quality-assurance process; avoid both the appearance and reality of financial and other conflicts of interest through staff training, project screening, and a policy of mandatory disclosure; and pursue transparency in our research engagements through our commitment to the open publication of our research findings and recommendations, disclosure of the source of funding of published research, and policies to ensure intellectual independence. For more information, visit www.rand.org/about/research-integrity.
The RAND Corporation is a nonprofit institution that helps improve policy and decisionmaking through research and analysis. RAND's publications do not necessarily reflect the opinions of its research clients and sponsors.