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On the political economy of binational counter-terrorism.

Article Excerpt
I. Introduction

This essay applies some of the simplest techniques of game theory to explore the economic incentives facing foreign nations sheltering terrorists, and the predictable responses of those nations in a mixed-motive non-zero sum game in which the terrorists are dummy players. (1) The principal players in the game are the nation that is a target of international terrorist activities and the nation that is a host (willing or unwilling) for the headquarters of the international terrorists.

The idea for this essay came to me from a recent news story published on the front page of The New York Times. Here is the first paragraph of that story: (2)

"BUENOS AIRES, July 21 [2002]--The Iranian government organized and carried out the bombing of a Jewish community center here eight years ago that killed 85 people and then paid Argentina's president at the time, Carlos Saul Menem, $10 million to cover it up, a witness in the case said in sealed testimony."

I take no position as to whether the reported allegations are true. If the report is accurate, it constitutes an especially obvious example of state-sponsored terrorism. Whether true or not, the report exemplifies a profoundly problematic aspect of the so-called "war" on international terrorism; namely the complicity of governments (or government agents acting in their official capacity) that accommodate international terrorists operating from within their sovereign borders.

Additional evidence of the complicity of host nations is found in a Report released on 16 October 2002 by The Council on Foreign Relations. In one of its starkest conclusions the Report stated the following:

"It is worth stating clearly and unambiguously, if only because official U.S. government spokesmen have not: for years, individuals and charities based in Saudi Arabia have been the most important source of funds for Al Qaeda, and for years Saudi officials have turned a blind eye to this problem." (3)

The allegations in the Report published by the Council are consistent with the allegations in a lawsuit brought in a U.S. Federal Court. As reported in the New York Times (4) on 25 October 2002, the lawsuit alleged that the Saudi Ambassador to Great Britain (Prince Turki bin Faisal) negotiated a deal with Al Qaeda in 1998 in which the terror network agreed to end its efforts to subvert the Saudi monarchy in exchange for a Saudi promise not to comply with demands for the extradition of Al Qaeda leaders.

The war on terrorism has been simmering at least since the year 1972 when Israeli athletes were murdered at Munich. (5) But it was not until nearly 30 years later that the events of 11 September 2001 demonstrated to the government and the people of the United States that international terrorists had the technical capacity and the will to attack iconic institutions on U.S. soil. It is ironic that only a few months before 11 September one can find an expert expressing his opinion that the threat of terrorism had shrunk in recent years. (6)

The infrequent attacks within U.S. borders by foreign-based terrorists might be explained by a variety of factors: perhaps the U.S. was better able than most other nations to detect and avert any plan of attack within its boundaries, or perhaps terrorist groups believed, whether correctly or mistakenly, that a large scale attack in the U.S. was technically infeasible or too risky.

A third possible explanation of the rarity of attacks within U.S. borders by foreign-based terrorists is that they may have recognized that a condition of their organizational existence within a sheltering country (such as Syria, Iraq or Iran) was to avoid bringing down the wrath of the U.S. on their hosts.

To the extent that this is (was) a correct characterization of the strategic thinking of foreign-based terrorists, it suggests that the U.S. policy of prosecuting a "war on terrorism" must contend with the behavior of nations that are hosts to terrorist organizations as well as the terrorists themselves. An example of the problem of transmitting intentions to host countries is that of communicating, persuasively, an intended pattern of retaliation for acts that the U.S. considers absolutely intolerable. (7) The paper by Sandler and Enders (2002, 2) observes that transnational terrorist incidents are what they call transboundary externalities, insofar as actions conducted by terrorists or authorities in one country may impose uncompensated costs or benefits on people or property of another country. This paper applies game theory to analyze how governments react to terrorist-induced changes in their policies

II. Research on The Application of Game Theory to Counterterrorism

In the past decade the published literature applying game theory to terrorism has proliferated. A search on the internet turned up citations to dozens of articles purporting to apply the techniques of game theory to study international terrorism. A few of the most recent representative publications include Major (2002), Bueno de Mesquita (2004), Sandler and Enders (2002), Keet (2003), Sandler and Arce M. (2003) and Arce M. and Sandier (2005). Nearly all of the published literature I reviewed has focused attention on the design and analysis of games played out between terrorists and their potential targets. Those papers are not germane to the analysis in this essay. Significant exceptions are the two papers by Sandier and Arce M cited above. Those authors design games to reflect counter-terrorist policies dichotomized between what they call proactive and deterrence. Arce M. and Sandier (2005, 184) explain:

"Such proactive policies may include destroying terrorist training camps, retaliating against a state sponsor, infiltrating terrorists groups, gathering intelligence and freezing assets. Preemption is the quintessential proactive policy in which terrorists and their assets are attacked to curb subsequent terrorist campaigns"

The alternative policies are defensive. They explain:

"... defensive policies are intended to deter an attack by either making success more difficult or by increasing the likely negative consequences to the perpetrator."

The games constructed and analyzed by Arce M. and Sandier contemplate the games played by potential target nations against each other. The players are the United States and the European Union. The terrorists are dummy players in those games. Their articles establish the prevalence of deterrence over preemption when targeted governments can choose between either policies or employ both. They find a similar proclivity to favor defensive counter-terrorist measures over proactive policies.

Arce M. and Sandier comment: "Proactive policies tend to provide purely public benefits to all potential targets and are usually undersupplied." That observation constitutes the germination of the ideas in this paper.

This paper will extend the work of Arce M. and Sandier to an issue which they include in their taxonomy, but which they do not explore in any detail. I propose a game in which only one of the players is a potential target; the other player is a nation that is the host (willing or unwilling) to...