THE ECONOMICS OF TERRORISM FROM A POLICY‐MAKER’S PERSPECTIVE

Abstract

This paper introduces a brief framework on the political decision‐making process in the context of terrorism. I relate the trade‐offs policy‐makers are faced with to the economic terrorism literature. Past years have shown a steady increase in theoretical and empirical contributions. However, the major part of the empirical advances is on the economic effects of terrorism, its origins, and drivers. More analysis is needed on public perceptions, responses to both the threat of terrorism and policy measures, as well as the costs of anti‐terrorism measures. This would improve our understanding of the impact of terrorism on political and economic development.

Keywords:

• Terrorism
• Risk
• Decision‐making
• Perceptions
• Anti‐terrorism measures

ACKNOWLEDGEMENTS

This paper was prepared for the first work package of EUSECON (A New Agenda for European Security Economics). The author acknowledges financial support by the Seventh Framework Program (Grant Agreement 218105).

Notes

¹ More extensive surveys are, for example, Llussa and Tavares (2007) and Brück et al. (2008).

² Since this definition is very broad in its nature, it would also include risks such as traffic accidents. I would, therefore, like to emphasize that there is no intended judgement in the term ‘human‐induced insecurities’.

³ For an example, see Willis et al. (2005).

⁴ This could be achieved by decreasing media attention, by tackling grievances and root causes, etc.

⁵ Economists define a public good as being non‐rival and non‐excludable. This means that the consumption of this kind of good by one person does not affect consumption of this good by another person. Non‐excludable means that another person cannot be prevented from consuming that good. Thus, the production of public goods results in positive externalities that are not remunerated, thereby the incentives to produce it voluntarily might not be sufficient.

⁶ Note that this formulation – for simplistic purposes – assumes that there are only two periods, where the policy‐maker chooses and implements anti‐terrorism measures in t–1 to affect the terrorism risk in t.

⁷ See, for example, Downs (1957).

⁸ This would lead us away from the concept of rationality as optimization and towards the concepts of bounded rationality, which is outside the scope of this paper.

⁹ For an overview on cross‐country analyses on the causes of terrorism, see Krieger and Meierrieks (2008).