Calculating tragedy: assessing the costs of terrorism

In this article Frey et al. (2007) consider the ways in which the effects of terrorist activities have been calculated in the past with a focus on the number of incidents or the impact on the economy. However, such measures are a poor indication of the utility losses associated with terrorism as indicated in their discussion of thirty years of violence in Northern Ireland

"Frey et al. (2004) calculate a hypothetical willingness-to-pay of a resident of Northern Ireland for a reduction in the number of fatalities to the average level of Great Britain and the Republic of Ireland. Accordingly, a resident of Northern Ireland (with average household income) would be willing to pay around 41% of his income for a reduction in terrorist activity to the level that prevails in the more peaceful parts of the country or the sister republic."

A life-satisfaction approach suggests that the decrements in experienced utility associated with terrrorism far outweigh the soley economic consequences.