Initial damage and psychological effects of a dirty bomb attack on downtown L.A.’s financial district would cost nearly $16 billion over a decade and psychological effects could persist for a decade, according to a study by internationally recognized economists and decision scientists in the current issue of Risk Analysis.

The study monetized the effects of fear and risk perception and incorporated them into a state-of-the-art macroeconomic model.

Economists most often focus on the immediate economic costs of a terrorist event, such as injuries, cleanup and business closures. In this scenario, those initial costs would total just over $1 billion.

Underestimating costs

But the economic effects of the public’s change in behavior are “15 times more costly than the immediate damage in the wake of a disaster,” said study co-author Adam Rose, a research professor with the USC Price School of Public Policy and USC’s Center for Risk and Economic Analysis of Terrorism Events (CREATE).

To estimate how fear and risk perception ripple through the economy after a major terrorist event, the researchers surveyed 625 people nationwide after showing them a mock newspaper article and newscasts about the hypothetical dirty bomb attack to gauge the public’s reticence to return to normal life in the financial district.

The study translated these survey results into estimates of what economic premiums would be put on wages and what discounts shoppers would likely require in the aftermath of a terrorist attack. After six months, 41 percent of those surveyed said they would still not consider shopping or dining in the financial district. And, on average, employees would demand a 25 percent increase in wages to return to their jobs.

The paper relied on one of 15 planning scenarios — the detonation of a dirty bomb in a city center — identified by the Department of Homeland Security in an effort to focus anti-terrorism spending nationwide.

Ref.: William J. Burns & Paul Slovic, Risk Perception and Behaviors: Anticipating and Responding to Crises, Risk Analysis, 2012; DOI:10.1111/j.1539-6924.2012.01791.x (open access)