#08-04:

We develop a game-theoretic analysis of terrorism that examines the interaction between a terrorist organization and multiple target countries, and considers both pre-emption and deterrence as counterterrorist policies. The damage from terror includes not only the material cost of fatality, injury and loss of property, but also the resultant fear. The fear-effect leads to different kinds of equilibria and implications for counter-terrorism policies. In particular, the model identifies conditions under which greater pre-emption may be the rational response to an increase in terrorism, i.e., it analyzes the merit of the dictum: “offense is the best defense.” Further, it examines the characteristics of cooperative behavior among target countries in dealing with the threat of terrorism.