Environmental Economics: "Bill for a Bombing Can Be Hard to Tally"

April 29, 2013

"Bill for a Bombing Can Be Hard to Tally"

As investigators try to uncover the motives and methods of the alleged Boston Marathon bombers, another mystery may take longer to solve: How much will the attacks harm the economies of Boston and the U.S.? ...

Economists studying terrorism's impact generally try to separate the direct costs of attacks from the costs of responses. Responses, such as military action in Afghanistan against the Taliban or Boston's all-out manhunt for the bombing suspects, are harder to attribute to the initial attacks because they aren't inevitable. ...

Paying the costs of responses also can bring benefits of its own—for example, by preventing more attacks. "Suppose we did not pay them and allowed the terrorism threat to be higher—what would the economy look like?" said V. Kerry Smith, an economist at Arizona State University. ...

Adam Rose, an economist at the University of Southern California, prefers to include only direct costs such as business interruption and property damage. Even there, estimates vary widely. Prof. Rose and colleagues enlisted eight teams in 2009—with funding from the Department of Homeland Security—to each model the economic impact of Sept. 11, and got estimates ranging from $0—if the pre-existing U.S. recession was entirely to blame for economic woes—to $549 billion. Separating the effects of that recession from those of the attacks is one of the main challenges facing researchers.

Disquietingly, the loss of lives isn't the predominant factor, economically speaking. Even using a value of about $7 million to $8 million per life, a typical estimate used by government agencies for cost-benefit analyses of saving lives, the Sept. 11 attacks cost only about $20 billion to $25 billion in human capital. "It's much smaller than business interruptions," Prof. Rose said.

All of this is interesting (and disturbing to a noneconomist, I'm sure) but I'm left without comment ... except ... one of Adam Rose's teams came back with an answer of $0? I can see how one might really think that in terms of business interruption but there is still the loss of human and physical capital. I hope they gave the money back with submission of their report.

Posted by John Whitehead on April 29, 2013 at 09:13 AM in Benefit-cost analysis | Permalink

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From the WSJ's Numbers Guy:

As investigators try to uncover the motives and methods of the alleged Boston Marathon bombers, another mystery may take longer to solve: How much will the attacks harm the economies of Boston and the U.S.? ...

Economists studying terrorism's impact generally try to separate the direct costs of attacks from the costs of responses. Responses, such as military action in Afghanistan against the Taliban or Boston's all-out manhunt for the bombing suspects, are harder to attribute to the initial attacks because they aren't inevitable. ...

Paying the costs of responses also can bring benefits of its own—for example, by preventing more attacks. "Suppose we did not pay them and allowed the terrorism threat to be higher—what would the economy look like?" said V. Kerry Smith, an economist at Arizona State University. ...

Adam Rose, an economist at the University of Southern California, prefers to include only direct costs such as business interruption and property damage. Even there, estimates vary widely. Prof. Rose and colleagues enlisted eight teams in 2009—with funding from the Department of Homeland Security—to each model the economic impact of Sept. 11, and got estimates ranging from $0—if the pre-existing U.S. recession was entirely to blame for economic woes—to $549 billion. Separating the effects of that recession from those of the attacks is one of the main challenges facing researchers.

Disquietingly, the loss of lives isn't the predominant factor, economically speaking. Even using a value of about $7 million to $8 million per life, a typical estimate used by government agencies for cost-benefit analyses of saving lives, the Sept. 11 attacks cost only about $20 billion to $25 billion in human capital. "It's much smaller than business interruptions," Prof. Rose said.