Working Paper No. 03-04-02 An economic perspective on transnational terrorism

This paper indicates how economic analysis can be applied for enlightened policy making with respect to transnational terrorism. Both theoretical tools (e.g., game theory and utilitymaximizing models) and empirical techniques (e.g., time series and spectral analysis) are used to put modern-day terrorism into perspective and to suggest policy responses. From hostage negotiations to the installation of technological barriers (e.g., metal detectors, embassy fortification), economic methods are shown to provide policy insights. Transnational terrorism and efforts to address it are shown to involve transnational externalities and market failures. Strategic interactions abound in the study of transnational terrorism. JEL classifications: D74, H56