Federal Decision Making for Homeland Security

The events of 9/11 have dramatically shifted public and private sector priorities aimed at addressing the threat of transnational terrorism. An important issue facing public decision makers is how best to allocate scarce resources in the face of significant uncertainty concerning potential threats and hazards, together with uncertainty concerning the potential costs and benefits associated with possible prevention and mitigation strategies. Viewing this problem from the vantage point of modern economic theory, normative theories of choice provide guidance on how agents should make decisions if they wish to act in accordance with certain logical principles. Often, however, there is a discord between normative theory and how people behave in real-world decision contexts. In this paper we explore several aspects of current homeland security resource allocation practices within the federal government. We begin with an examination of two normative investment models, and we explore the linkages that exist between actual practice and the insights that economic theory lends to these problems. We then present the rudiments of a prescriptive approach to homeland security decision making and risk management that seeks to guide decision makers toward consistent, rational choices, while recognizing their real-world limitations and constraints.