Government Protection against Terrorists Funded by Benefactors and Crime: An Economic Model

We model a game involving a terrorist, the terrorist’s benefactor, and a government protecting against terrorism. The terrorist generates terrorism effort using its own resources, funding from a benefactor, and crime. Crime can be lucrative for a terrorist but may deter benefactors, thus causing a strategic dilemma. The model accounts for resources, costs of effort, valuations of terrorism by the three players, and crime production characteristics. We determine how a variety of model parameters, the government, and the benefactor influence a terrorist’s terrorism and crime efforts, and relative ideological orientation along a continuum from ideological to criminal. We determine which factors impact government protection, for example that it is inverse U shaped in terrorism effort. We determine the implications of letting the benefactor choose optimal funding and/or punishment for crime, for example eliminating punishment if both are chosen optimally. The model parameters are estimated for sixty-five terrorist groups using the global terrorism database and the fragile states index.