Counterterrorism Policy: Spillovers, Regime Stability, and Corner Solutions

Subhayu Bandyopadhyay and Todd Sandler

No 2020-015, Working Papers from Federal Reserve Bank of St. Louis

Abstract: This paper takes a unique approach to the scenario where a resident terrorist group in a (fragile) developing nation poses a terrorism threat at home and abroad. The host developing nation’s proactive countermeasures against the resident terrorist group not only limits terrorism at home and abroad, but also bolsters regime stability at home. A two-stage game is presented in which the developed country takes a leadership role to institute a tax-subsidy combination to discourage (encourage) proactive measures at home (abroad) in stage 1. Stage 2 involves both nations’ counterterrorism choices under alternative stage-1 public-policy packages. Unlike the extant literature, we explore corner and interior solutions in both stages based on the terrorists’ targeting preferences and the host nation’s regime-stability preferences. Surprisingly, the developed nation may profit from policy packages that reduce global counterterrorism while raising global terrorism. This outcome and others involve engineered counterterrorism burden shifting.

Keywords: counterterrorism policy; tax-subsidy redistributive schemes; externalities; terrorist-targeting preferences; publicness and corner solutions (search for similar items in EconPapers)
JEL-codes: D74 H23 H41 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2020-06
Note: Publisher DOI: https://doi.org/10.1016/j.jebo.2021.05.031
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Published in Journal of Economic Behavior & Organization

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DOI: 10.20955/wp.2020.015

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