In the aftermath of the September 11 terrorist attacks in New York City and Washington, D.C., there has been renewed concern about airport security. To date, security services at major airports have been provided by a small number of private firms under contract with the airlines.
a. Many commentators and policy makers have argued that airport security should not be left as the responsibility of private firms. Identify the possible sources of market failure (if any) that might lead to security standards that are too weak. What kinds of economic information could one gather as evidence for or against market failure?
b. Supposing that a strong case for market failure were made, what are the possible remedies? How could one apply benefit-cost analysis to craft the most effective remedy? In answering questions (a) and (b), a first step is to gather relevant information concerning the economics of airport security from the business press and online.