Abstract:
This research project sheds light on the emergence of the U.S. terrorism insurance market after the terrorist attacks against the U.S. on September 11, 2001. It develops economic models to study the determination of terrorism insurance premiums before and after 9/11. In addition, this research project argues that the U.S. terrorism insurance market faced a major failure early on which was threefold: small numbers of demanders and suppliers, symmetry of disinformation, and negative externalities. The U.S. government reacted to this major failure by passing the Terrorism Risk Insurance Act (TRIA). In this research paper, I evaluate TRIA's effectiveness on dealing with the major failure the market experienced early on. I use empirical evidence compiled by the U.S. Department of the Treasury to test my hypothesis on TRIA's effectiveness. Finally, I propose my own solution which I believe corrects for the major failure and ensures a prosperous future for the U.S. terrorism insurance market. Overall, this research paper spurs discussion on the past, present, and future of the U.S. terrorism insurance market, a market with a growing impact on U.S. economic growth.
