Cost-Benefit Analysis of Homeland Security Expenditures

Introduction and Analytical Framework

Cost-benefit analyses are routinely conducted for federal programs and proposed federal programs. The researchers propose a cost-benefit analysis for homeland security expenditures designed to address conventional threats to national security. An evaluation of catastrophic threats is specifically excluded from this analysis, as only 14% of the federal homeland security budget is directed at the prevention of catastrophic threats to national security. The recommendation from the authors is to employ a risk-informed framework for the proposed cost-benefit analysis. A risk-informed approach has as its basis consideration of the likelihood of occurrence, the life/safety effectiveness, and the economic cost of proposed security and protective measures, and it includes any "consequence of terrorist attacks on such infrastructure" (Stewart & Mueller, 2009, p. 2). Thus, the metrics associated with the proposed cost-benefit research are: (1) cost per life saved, and (2) net benefit as measured by lives saved and economic costs.

A report from the 9/11 Commission admonished the federal government to develop and implement a national security plan that would "reflect assessment of risks and cost-effectiveness" (p. 2 in NC 2004). The authors argue that a comprehensive assessment to inform policy making and policy implementation has not been conducted, making the cost-benefit analysis policy-relevant. A comprehensive assessment of the anti-terrorism components of the national security plan is of interest to policy makers, policy implementers, and to the general citizenry.

Unit of Analysis and Cost-Benefit Metrics

Best practices in program evaluation require clarity about what is being measured and investigation into the appropriateness of what is being measured. The proposed cost-benefit analysis for homeland security uses the Value of a Statistical Life (VSL) as its key economic unit of analysis — specifically, a human life saved from terrorism. The authors examine a historical list of federally-funded projects and their associated VSLs to identify a midpoint value of $7.5 million, which represents "a reasonably accurate reflection of societal considerations of risk acceptability and willingness to pay to save a life" (Stewart & Mueller, 2009, p. 5). The authors also concede that "non-quantifiable criteria may be important also in judging the overall acceptability of risks" (Stewart & Mueller, 2009, p. 5), thereby acknowledging a potential weakness in the goodness of fit of contemporary mainstream cost-benefit analysis — which presumes an absence of values in the equation and thereby implies the appropriateness of applying CBA to decisions of moral import.

The authors clearly identify the costs to be assessed as the VSL of the homeland security expenditures. The benefit to be measured is the effectiveness of increased expenditures for federal homeland security measures since 9/11. The increased cost for six homeland security measures identified by the authors is $31.2 billion in the period from 2001 through 2008 (Stewart & Mueller, 2009, p. 6). The authors delineate costs not included in this figure and emphasize that it is considered a conservative estimate of the increase in homeland security expenditures since 9/11.

Cost-Benefit Analysis by the Numbers

The authors examine the parameters of numbers of lives lost and potential lives lost to terrorism within several frameworks. Domestic and global numbers of lives lost, both forward- and backward-looking, are fitted together to create a mosaic of possible scenarios. Top and bottom parameters are calculated and declared, and a range of 50 to 500 lives is established.

Given the $7.5 million per life value established by the authors, the number of American lives that would need to be saved on U.S. soil for the increase in homeland security expenditures from 2001 to 2008 to be cost-effective is 4,000. When actual costs for the estimated range of lives that could be saved are calculated, the expenditures could potentially span $63 million for 500 lives saved to $630 million for 50 lives saved. The estimated cost increase for homeland security since 2001 is "between 8 to 80 times higher than generally accepted by society as appropriate for risk reduction" (Stewart & Mueller, 2009, p. 11). From this analysis, the authors conclude that, even given the most optimistic equation, the increased expenditures for homeland security as defined fail a cost-benefit analysis.

A second analysis, which looked specifically at the economic costs of terrorism, was compiled by the authors through examination of secondary research and data. Three studies using independent bases were offered for comparison: a RAND study of a moderate-case scenario, an Australian study commissioned to explore a scenario similar to the July 2005 London bombings, and a study by the International Monetary Fund (IMF) that focused on U.S. GDP after 9/11 and in the three years subsequent to that event. The RAND study indicated that two to three terrorist attacks would result in cost-effective expenditures. The Australian study on cost-effectiveness would require the prevention of seven terrorist attacks similar in scope to the London bombings. And the IMF analysis would require prevention of an attack on the scale of 9/11 every several years in order to be cost-effective. As a side note, the RAND Corporation conducts just under half of its research on issues of national security, and is rated "fifth in the latest survey of think tank media citations by FAIR (Fairness & Accuracy in Reporting), which categorizes RAND as Centrist" (Source Watch, 2011), all of which lends credibility to their estimates.