A target-based model of efficient allocation of federal resources to the states for emergency preparedness

By Jerry Cromwell, Edward Drozd

In the wake of the September 11, 2001, terrorist attacks, Congress provided a fund to help states offset costs for protecting against terrorist attacks and for emergency preparedness. More than one-third of this money is shared equally by all states, with the rest distributed based on the states’ population share, regardless of the potential targets in each state. This paper develops a rational public finance framework for distributing money to states for protecting against terrorist attacks. We propose two allocation criteria: (1) an efficiency criterion that equalizes the marginal expected loss (human and monetary) across all targets and (2) an equity criterion that adjusts payments to states based on their ability to pay for their own protection. These criteria imply a much more concentrated distribution of protection spending in a few highly populated, target-rich states than is now the case. We then explore the additional information required to protect against all types of terrorists. Limiting the set of protected targets to a few that are highly valued by well-funded terrorist groups produces an even more geographically concentrated funding portfolio. Terrorist insurance is preferable for low-likelihood, difficult-to-protect targets, or targets attractive to individual terrorists.


Cromwell, J., & Drozd, E. (2008). A target-based model of efficient allocation of federal resources to the states for emergency preparedness. (RTI Press Publication No. OP-0001-0802). Research Triangle Park, NC: RTI Press. https://doi.org/10.3768/rtipress.2008.op.0001.0802

© 2019 RTI International. This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.


Jerry CromwellJerry Cromwell, PhD, has more than 35 years of experience conducting federally funded technical and evaluation projects in health economics. Major fields include Medicare hospital and physician payment systems and productivity gains, disease management evaluations, federal-state Medicaid public finance, physician participation in publicly funded health programs, reimbursement of anesthesia services, and disparities in access to complex health technologies. His technical expertise includes actuarial estimation of hospital inpatient and outpatient payment rates, quasi-experimental design of payment reform demonstrations, quantification of breadth and depth of state Medicaid insurance coverage and physician work effort, and econometric analysis of business cycle effects on Medicaid eligibility. He has sat on AHCPR, VA, and OTA health care study sections and testified before Congress on Medicare and Medicaid payment reforms. He is the founder and past president of Health Economics Research, which was acquired by RTI in 2002.

Edward DrozdEdward M. Drozd, PhD, is a senior research economist at RTI International specializing in health care financing and payment. He is based in RTI’s Waltham, Massachusetts, office.

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