A Preliminary Benefit/Cost Framework for Counterterrorism Public Expenditures

The author develops a range of rough estimates of the benefits and costs of a U.S. counterterrorism effort in the context of moderate (based on Northern Ireland in 1999), severe (recent Israeli experience), and nuclear terrorist attacks against the United States. The direct adverse economic effects of terrorist attacks include deaths and injuries, property damage, and reduced economic output. For the moderate, severe, and nuclear cases, these costs are estimated at approximately $11 billion, $183 billion, and $465 billion per year, respectively. Real annual resource costs of U.S. counterterrorism efforts in the three cases are found to be $10 billion, $200 billion, and $300 billion, respectively. The analysis suggests that the marginal benefit may exceed the marginal cost, and thus that spending may in fact be little. Another important facet of the problem is who is to finance the counterterrorism efforts-the federal government or state or local agencies. The author's approach should provide a framework for benefit/cost analysis of particular policies, and thus for construction of a rough but reasonable ranking among the myriad potential actions decisionmakers might consider. Finally, the preservation of national pride, although difficult to measure, can be considered a collective good benefiting all.