Skip to main content

Advertisement

Log in

The life satisfaction approach to valuing public goods: The case of terrorism

  • Published:
Public Choice Aims and scope Submit manuscript

Abstract

Terrorism has large social costs that are difficult to quantify for the well-known problems of eliciting people’s preferences for public goods. We use the LSA to assess these costs in utility and monetary terms. Based on combined cross-section time-series data, we estimate the costs of terrorism for France and the British Isles. We find large negative effects of terrorism on life satisfaction that translate into considerable compensating surpluses for a hypothetical reduction in terrorism, in particular for the serious conflict in Northern Ireland. The effects of terrorism are robust and differ across groups in accordance with prior expectations.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Subscribe and save

Springer+ Basic
EUR 32.99 /Month
  • Get 10 units per month
  • Download Article/Chapter or Ebook
  • 1 Unit = 1 Article or 1 Chapter
  • Cancel anytime
Subscribe now

Buy Now

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Similar content being viewed by others

References

  • Abadie, A. (2006). Poverty, political freedom, and the roots of terrorism. American Economic Review, 96(2), 50–56.

    Article  Google Scholar 

  • Abadie, A., & Gardeazabal, J. (2003). The economic costs of conflict: A case study of the Basque Country. American Economic Review, 93(1), 113–132.

    Article  Google Scholar 

  • Arrow, K. J. (1958). Utilities, attitudes, choices: A review note. Econometrica, 26(10), 1–23.

    Article  Google Scholar 

  • Becker, G. S., & Rubinstein, Y. (2004). Fear and the response to terrorism: An economic analysis. Mimeo, University of Chicago.

  • Berrebi, C. Evidence about the link between education, poverty and terrorism among Palestinians. Peace Economics, Peace Science and Public Policy, 13(1) (2003), article 2.

  • Blanchflower, D. G., & Oswald, A. J. (2007). Hypertension and happiness across nations. IZA Discussion paper, Series No. 2633, IZA, Bonn.

  • Blomquist, G. C., Berger, M. C., & Hoehn, J. P. (1988). New estimates of quality of life in urban areas. American Economic Review, 78(1), 89–107.

    Google Scholar 

  • Clark, A. E., Frijters, P., & Shields, M. A. (2008). Relative income, happiness and utility: An explanation for the Easterlin Paradox and other puzzles. Journal of Economic Literature, 46(1), 95–144.

    Article  Google Scholar 

  • Diener, E., Suh, E. M., Lucas, R. E., & Smith, H. L. (1999). Subjective well-being: Three decades of progress. Psychological Bulletin, 125(2), 276–302.

    Article  Google Scholar 

  • Di Tella, R., & MacCulloch, R. J. (2006). Some uses of happiness data in economics. Journal of Economic Perspectives, 20(1), 25–46.

    Article  Google Scholar 

  • Downes-Le Guin, T., & Hoffman, B. (1993). The impact of terrorism on public opinion, 1988 to 1989. RAND Corporation, Santa Monica, CA.

  • Due, J. F., & Friedlaender, A. F. (1973). Government finance: Economics of the public sector, 5th ed. Homewood: Irwin.

    Google Scholar 

  • Elster, J., & Roemer, J. E. (eds.) (1991). Interpersonal comparisons of well-being. Studies in rationality and social change. Cambridge: Cambridge University Press.

    Google Scholar 

  • Enders, W., & Sandler, T. (1991). Causality between transnational terrorism and tourism: The case of Spain. Terrorism, 14(1), 49–58.

    Article  Google Scholar 

  • Enders, W., & Sandler, T. (1995). Terorism: Theory and applications. In K. Hartley & T. Sandler (Eds.), Handbook of defense economics (Vol. 1, pp. 213–249). Amsterdam: Elsevier.

    Google Scholar 

  • Enders, W., & Sandler, T. (2006). The political economy of terrorism. Cambridge: Cambridge University Press.

    Google Scholar 

  • Engene, J. O. (2007). Five decades of terrorism in Europe: The TWEED dataset. Journal of Peace Research, 44(1), 109–121.

    Article  Google Scholar 

  • Fay, M.-T., Morrissey, M., & Smyth, M. (1999). Northern Ireland’s troubles: The human costs. London: Pluto Press.

    Google Scholar 

  • Ferrer-i-Carbonell, A., & Frijters, P. (2004). How important is methodology for the estimates of the determinants of happiness? Economic Journal, 114(497), 641–659.

    Article  Google Scholar 

  • Fielding, D. (2003). Investment, employment, and political conflict in Northern Ireland. Oxford Economic Papers, 55(3), 512–535.

    Article  Google Scholar 

  • Fischer, P., Greitemeyer, T., Kastenmuller, A., Jonas, E., & Frey, D. (2006). Coping with terrorism: The impact of increased salience of terrorism on mood and self-efficacy of intrinsically religious and nonreligious people. Personality and Social Psychology Bulletin, 32(3), 365–377.

    Article  Google Scholar 

  • Frey, B. S. (2004). Dealing with terrorism-stick or carrot? Cheltenham/Northampton: Edward Elgar.

    Google Scholar 

  • Frey, B. S., & Luechinger, S. (2003). How to fight terrorism: Alternatives to deterrence. Defence and Peace Economics, 14(4), 237–249.

    Google Scholar 

  • Frey, B. S., & Stutzer, A. (2000). Happiness, economy and institutions. Economic Journal, 110(466), 918–938.

    Article  Google Scholar 

  • Frey, B. S., & Stutzer, A. (2002a). Happiness and economics: How the economy and institutions affect well-being. Princeton: Princeton University Press.

    Google Scholar 

  • Frey, B. S., & Stutzer, A. (2002b). What can economists learn from happiness research? Journal of Economic Literature, 40(2), 402–435.

    Article  Google Scholar 

  • Frey, B. S., & Stutzer, A. (2005). Testing theories of happiness. In L. Bruni & P. Porta (Eds.), Economics and happiness. Framing the analysis (pp. 116–146). Oxford: Oxford University Press.

    Chapter  Google Scholar 

  • Frey, B. S., Luechinger, S., & Stutzer, A. (2007). Calculating tragedy: Assessing the costs of terrorism. Journal of Economic Surveys, 21(1), 1–24.

    Article  Google Scholar 

  • Hoffman, B. (1998). Inside terrorism. New York: Columbia University Press.

    Google Scholar 

  • Hoffman, B., & Hoffman, D. K. (1995). The RAND-St. Andrews chronology of international terrorism 1994. Terrorism and Political Violence, 7(4), 178–229.

    Google Scholar 

  • Kahneman, D., Diener, E., & Schwarz, N. (Eds.) (1999). Well-being: The foundations of hedonic psychology. New York: Russell Sage Foundation.

    Google Scholar 

  • Kahneman, D., & Thaler, R. H. (2006). Anomalies: Utility maximization and experienced utility. Journal of Economic Perspectives, 20(1), 221–234.

    Article  Google Scholar 

  • Kahneman, D., Wakker, P. P., & Sarin, R. (1997). Back to Bentham? Explorations of experienced utility. Quarterly Journal of Economics, 112(2), 375–405.

    Article  Google Scholar 

  • Kimball, M., & Willis, R. (2006). Utility and happiness. Mimeo, University of Michigan.

  • Koivumaa-Honkanen, H., Honkanen, R., Viinamäki, H., Heikkilä, K., Kaprio, J., & Koskenvuo, M. (2001). Life satisfaction and suicide: A 20-year follow-up study. American Journal of Psychiatry, 158(3), 433–439.

    Article  Google Scholar 

  • Krueger, A. B., & Laitin, D. D. (2003). Kto kogo?: A cross-country study of the origins and targets of terrorism. In P. Keefer & N. Loayza (Eds.), Terrorism, economic development, and political openness (pp. 178–173). Cambridge: Cambridge University Press.

    Google Scholar 

  • Krueger, A. B., & Maleckova, J. (2003). Education, poverty and terrorism: Is there a causal connection? Journal of Economic Perspectives, 17(4), 119–144.

    Article  Google Scholar 

  • Kurrild-Klitgaard, P., Justesen, M.K., & Klemmensen, R. (2006). The political economy of freedom, democracy and transnational terrorism. Public Choice, 128(1–2), 289–315.

    Article  Google Scholar 

  • Lepper, H. S. (1998). Use of other-reports to validate subjective well-being measures. Social Indicators Research, 44(3), 367–379.

    Article  Google Scholar 

  • Luechinger, S. (2008). Valuing air quality using the life satisfaction approach. Mimeo, University of Zurich.

  • Luechinger, S., & Raschky, P. (2008). Valuing flood disasters using the life satisfaction approach. Mimeo, University of Zurich.

  • McKittrick, D., & McVea, D. (2001). Making sense of the troubles. London: Penguin Books.

    Google Scholar 

  • Peterson, C. P., & Seligman, M. E. P. (2003). Character strengths before and after September 11. Psychological Science, 14(4), 381–384.

    Article  Google Scholar 

  • Piazza, J. A. (2006). Rooted in poverty? Terrorism, poor economic development, and social cleavages. Terrorism and Political Violence, 18(1), 159–177.

    Article  Google Scholar 

  • Registrar General Northern Ireland. (various years). Annual report. Northern Ireland Statistics and Research Agency, Belfast.

  • Rowley, C. K. (2006). Terrorist attacks on Western civilization. Public Choice, 128(1–2), 1–6.

    Article  Google Scholar 

  • Sandler, T., Arce, D. G., & Enders, W. (2008). Terrorism. Copenhagen Consensus 2008. Challenge paper, Copenhagen Consensus Center, Copenhagen.

  • Schelling, T. C. (1968). The life you save may be your own. In S. B. Chase (Ed.), Problems in public expenditure analysis (pp. 127–176). Washington: The Brookings Institution.

    Google Scholar 

  • Shughart, W. F. (2006). An analytical history of terrorism, 1945–2000. Public Choice, 128(1–2), 7–39.

    Article  Google Scholar 

  • Sen, A. K. (1986). The standard of living. In S. McMurrin (Ed.), Tanner lectures on human values (Vol. III). Cambridge: Cambridge University Press.

    Google Scholar 

  • Sunstein, C. R. (2003). Terrorism and probability neglect. Journal of Risk and Uncertainty, 26(2–3), 121–136.

    Google Scholar 

  • Sutton, M. (1994). Bear in mind these dead … . An index of deaths from the conflict in Ireland 1969–1993. Belfast: Beyond the Pale Publications.

    Google Scholar 

  • Urry, H. L., Nitschke, J. B., Dolski, I., Jackson, D. C., Dalton, K. M., Mueller, C. J., Rosenkranz, M. A., Ryff, C. D., Singer, B. H., & Davidson, R. J. (2004). Making a life worth living: Neural correlates of well-being. Psychological Science, 15(6), 367–372.

    Article  Google Scholar 

  • Van Praag, B. M. S., & Baarsma, B. E. (2005). Using happiness surveys to value intangibles: The case of airport noise. Economic Journal, 115(500), 224–246.

    Article  Google Scholar 

  • Viscusi, W. K., & Zeckhauser, R. J. (2003). Sacrificing civil liberties to reduce terrorism risks. Journal of Risk and Uncertainty, 26(2–3), 99–120.

    Article  Google Scholar 

  • Welsch, H. (2002). Preferences over prosperity and pollution: Environmental valuation based on happiness surveys. Kyklos, 55(4), 473–494.

    Article  Google Scholar 

  • Wilkinson, P. (2000). Terrorism versus democracy: The liberal state response. London/Portland: Frank Cass.

    Google Scholar 

Download references

Author information

Authors and Affiliations

Authors

Corresponding author

Correspondence to Bruno S. Frey.

Additional information

This is a substantially revised version of our original paper with the same title based on an extended data basis.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Frey, B.S., Luechinger, S. & Stutzer, A. The life satisfaction approach to valuing public goods: The case of terrorism. Public Choice 138, 317–345 (2009). https://doi.org/10.1007/s11127-008-9361-3

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11127-008-9361-3

Keywords

JEL Classification

Navigation