"The events of September 11, 2001, raised the nation's awareness of the potential scale of terrorist attacks, the likelihood of such attacks, and the benefits of spending on homeland security. Since that date, the public sector has undertaken efforts to boost security against terrorism. At the same time, there have been calls for new laws or regulations that would require businesses to assume an increased role in the nation's defense against terrorists. Those calls rest on the premise that the social benefits from private spending to enhance security are greater than the private benefits to the businesses making those spending decisions. If not, then businesses already have incentives to do as much as the nation would find cost-effective to enhance homeland security. This paper examines issues surrounding enhanced security efforts by private industry. For several important industries, it describes the vulnerabilities and potential losses - to both the private sector and the nation as a whole - that would underlie the expected costs of terrorist attacks and, hence, the broader benefits of security. The paper also reviews the incentives for private actions to limit vulnerabilities and losses for those industries and the existing government programs that address those incentives."
Congressional Budget Office: http://www.cbo.gov