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Retrospective Benefit–Cost Analysis of Security-Enhancing and Cost-Saving Technologies

Published online by Cambridge University Press:  17 December 2020

Scott Farrow  and
Detlof von Winterfeldt
Scott Farrow*
Affiliation:
Department of Economics, University of Maryland Baltimore County, 1000 Hilltop Circle, Baltimore, MD21250-0001, USA, e-mail: farrow@umbc.edu
Detlof von Winterfeldt
Affiliation:
Center for Risk and Economic Analysis of Terrorism Events, Industrial and Systems Engineering, University of Southern California, 3715 McClintock Avenue, Los Angeles, CA90089-0001, USA
*
*e-mail: farrow@umbc.edu
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Abstract

Research and development (R&D) planners in homeland security agencies would like to be able to prioritize investments in projects based on costs versus future safety and security benefits. While costs are often readily available, estimates of safety and security benefits are fraught with uncertainty. To address these challenges, a benefit–cost model of technological change is adapted to the homeland security context. Data are sparse; therefore, estimation is facilitated by developing a familiar linear welfare model using derivatives of cost and risk reduction functions to estimate areas of costs and benefits. The theoretical model is applied to two homeland security projects involving airport patrols and the assignment of U.S. federal air marshals to international flights. Retrospective data are available for most periods. Welfare-based rates of return are reported for the two cases, each of which is estimated to return large present value net benefits. Extensive sensitivity and Monte Carlo simulation explores uncertainties. Two important findings are that (i) given the rationality assumption, relative increases in security levels can be valued, even if the absolute level of security is not known; and (ii) large uncertainties about risk reduction exist but can be bounded by parametric sensitivity and uncertainty analysis.

Keywords

SecuritybenefitcostretrospectiveD6H56
Type
Article
Information
Journal of Benefit-Cost Analysis , Volume 11 , Issue 3 , Fall 2020 , pp. 479 - 500
Copyright
© The Author(s), 2020. Published by Cambridge University Press on behalf of the Society for Benefit-Cost Analysis

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