Abstract
The World Trade Center attack underscored the urgent need to assess vulnerabilities in the security of American lives and property and to implement preventive measures against catastrophic events. As policy-makers grapple with homeland security challenges, a key issue they face is determining when private sector security activities or government interventions are most effective in promoting national security. We argue that in many private sector settings, a combination of regulations, insurance, and third party inspections offers the most auspicious approach to improving security at reasonable economic cost.