ON RATIONAL CHOICE THEORY AND THE STUDY OF TERRORISM

Abstract

When rational choice theory is applied to the study of terrorism, it is important that attention be given to the derived principles of constrained utility maximization. Particularly useful is the Slutsky equation, which rigorously analyzes the quantity response in one activity to a price change in another. By directing attention to assumptions and/or information about compensated cross price elasticities, expenditure shares, and income elasticities, the Slutsky equation can provide critical guidance in both theoretical and empirical analysis.

Keywords:

• Terrorism
• Rational choice
• Deterrence
• Income and substitution effects
• Slutsky equation
• Composite good

ACKNOWLEDGEMENT

We are grateful to the referees and the editor for valuable comments and suggestions.

Notes

¹ For the purpose of this paper, we follow Frey and Luechinger (2003) in using the term deterrence to refer to actions that directly raise the cost and hence price of terrorist activity. This contrasts with Schelling (1966), who uses deterrence to refer to threats of retaliatory action that alter preferences.

² Figures 1 and 2 depict interior solutions. As Frey and Luechinger (2003: 244–245) recognize, a decrease in the price of other activities can leave terrorism unchanged in the case of a corner solution. For a discussion of suicide attacks interpreted as corner solutions, see Sandler (2003).

³ A proof of equation (1) is available from the authors upon request.

⁴ Alpay and Koc (1998) use data on household spending in Turkey to empirically estimate own and cross price elasticities and expenditure shares for nine commodity groups such as food, clothing, housing, and transportation. These estimates would appear to provide the information required to estimate ϵ_YY in equation (1) for Turkey. However, because Alpay and Koc's commodity categories include all goods, and terrorism is not separated out as a product category, the weighted sum of their matrix of elasticities necessarily sums to − 1.0, except for a small rounding error. Furthermore, the spending patterns in Alpay and Koc's study presumably reflect the behavior of typical households in Turkey, not terrorists.

⁵ Relevant to some extent on this issue are empirical studies of democracy and civil war. Examples include MacCulloch and Pezzini (2002), who find increased political freedom reduces revolutionary support; Hegre et al. (2001), who show an inverted U‐shaped relationship between the level of democracy and the likelihood of civil war; and Collier and Hoeffler (2004), who find an insignificant relationship between democracy and civil war. Terrorism, however, is distinct from civil war and is believed by many scholars today to be primarily a phenomenon of religious extremism (Enders and Sandler, 2000; Hoffman, 1998; and Juergensmeyer, 2000). Lewis (1996: 54) maintains that the so‐called neo‐Islamic fundamentalists ‘regard liberal democracy with contempt as a corrupt and corrupting form of government’. See also, for example, Sivan (1995).