There are two main categories of counterterrorism policies: proactive and defensive measures. Proactive policies directly target terrorists and, by weakening their ability, share public good features. Defensive measures, on the other hand, seek to protect a potential target. Unilateral defensive measures may induce terrorists to replace one target with another, possibly a foreign one, as confirmed by the succession of terrorist attacks in the European Union over the last 20 years. We analyse different institutional frameworks to determine the best one for interstate cooperation considering the externationalites of various counterterrorism measures. This article highlights the combined effect of voter propensity towards defensive policies, certain intelligence policies and different institutional scenarios on the (in)efficient strategic choice of counterterrorism defensive policies in democratic countries, where efficiency means maximising the joint welfare of countries. We consider four different institutional scenarios: decentralisation, intelligence cooperation, unanimous political cooperation and full political union. We model these situations as a three-stage signalling game and show that, surprisingly, intelligence cooperation increases the probability of efficient defensive policies more than unanimous political cooperation.
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