1.Bonus Scenario (+75 pts): Collective Action, Market Failure, Public Goods

"The horrifying events of 9/11 made Americans aware of their vulnerability to terrorist attacks and triggered the creation of the Department of Homeland Security (DHS) along with a substantial increase in federal spending to both thwart terrorist attacks and to increase the ability to respond to such emergencies. Much of this large increase in spending is in the form of direct transfer to states and cities through several grant programs." Since 2002, the grant programs include grants to states, law enforcement terrorism protection grants, "citizen corps" grants, urban area security grants, and transit security grants in urban areas. Most of the grants are distributed based on formulas, with a minimum amount of funding to each state; the largest portion of the formula is allocated based on state population. The remainder of the grant is discretionary, aimed at high-threat, high-density urban areas.(Hint: draw across the whole course to address this question fully address this question, please use concepts and argumentation from all the modules).

Guiding Questions

What market failure (if any) justifies government intervention to respond to the threat of terrorist attacks? (Your answer should pertain to the justification for government intervention in response to terrorist threats in any mature, capitalist economy.) What type of good is a government response to the threat of a terrorist attack? If there is no market failure, explain why and what the likely market response would be. If there is a market failure, why is that likely, and what might be an efficiency-enhancing government (or collective action, non-government) response? (You may want to argue that there is room for both a market and a non-market response.) The description above characterizes current policy in the U.S. What political or non-market failures/government failures (if any) are likely to characterize that policy? Why are these failures likely (or not likely) to occur?