On the Political Economy of Binational Counter-Terrorism

Abstract

This paper applies game theory to explore the economic incentives facing foreign nations sheltering terrorists. The players are a nation that has been a target of international terrorist activities and a nation that is a host (willing or unwilling) of international terrorists. The economics of multinational terrorism involve the costs to host nations of sanctions imposed by the U.S. and others, as well as the economic benefits transferred to the host nations by terrorist groups that they shelter. The main result shows that coalitions between international terrorists and their host nations allow the latter to sell licenses to terrorists thereby frustrating the counter-terrorist activities of victim nations.