The Cost of Terrorism: Network Effects and the Economic Impact of Child Loss

Abstract

Using a difference-in-differences model on full population data, we estimate the causal effects of a terrorist attack on labor market and social insurance outcomes of bereaved parents. Compared with non-bereaved parents, we find substantial negative effects. One mechanism through which these changes occur is impaired psychological health. This result is consistent with theoretical and empirical work emphasizing the connection between adverse health shocks and labor market outcomes. Moreover, the results suggest that the cost of terrorism and the value of preventive measures may be underestimated if negative spillover effects to the victims’ family network remain unrecognized.