We estimate the coalescence rate of close binaries with two neutron stars (
NS) and discuss the prospects for the detection of NS-NS inspiral events by
ground-based gravitational-wave observatories, such as LIGO. We derive the
Galactic coalescence rate using the observed sample of close NS-NS binarie
s (PSR B1913+16 and PSR B1534+12) and examine in detail each of the sources
of uncertainty associated with the estimate. Specifically, we investigate
(1) the dynamical evolution of NS-NS binaries in the Galactic potential and
the vertical scale height of the population, (2) the pulsar lifetimes, (3)
the effects of the faint end of the radio pulsar luminosity function and t
heir dependence on the small number of observed objects, (4) the beaming fr
action, and (5) the extrapolation of the Galactic rate to extragalactic dis
tances expected to be reachable by LIGO. We find that the dominant source o
f uncertainty is the correction factor (up to similar or equal to 200) for
faint (undetectable) pulsars. All other sources are much less important, ea
ch with uncertainty factors smaller than 2. Despite the relatively large un
certainty, the derived coalescence rate is consistent with previously deriv
ed upper limits, and is more accurate than rates obtained from population s
tudies. We obtain a most conservative lower limit that the detection rate b
y LIGO II of about 2 events per year. Our upper limit on the rate is betwee
n 300 and 1000 events per year.