Abstract:

How effective is counter‐terrorism and what are the underlying mechanisms? Relying on a unique experiment and detailed micro data from Israel, we show that the deployment of the Iron Dome anti‐rocket system mitigated the negative effect of rocket attacks on house prices and lowered the price premium associated with in‐house shelters. Analysis of surveys and data on purchases of anti‐anxiety drugs yields evidence consistent with a psychological mechanism: by reducing the negative effects on daily routine, subjective well‐being, and psychological distress, Iron Dome lowered the disamenity associated with living under the shadow of the rocket threat.