The economics of terrorism in a nutshell

Answers from the dismal science

Hatred can be analysed as any other good, and the presence of hatred creates a demand for terrorist acts, concludes Silviu Dochia in the Corner Solution, citing works by Harvard and GMU scholars.

An additional point that the Dochia could include is the role of states like Saudi Arabia and Pakistan in creating, incubating and subsidising ‘terror firms’. Not just that, these states supply hatred, lower entry barriers and subsidise ‘terror firms’ who can then export their products. When the export subsidies are removed, the firms begin concentrating on the domestic market. This may call for states to both raise tariff and non-tariff barriers against the import of terrorism and bear upon other states to drop their export subsidies.

8 thoughts on “The economics of terrorism in a nutshell”

  1. The “profit opportunities” from terrorism necessarily include some gains in voter support for politicians endorsing terrorists. The association can be more or less ouvert, depending on the international climate and so on. Still, voters can usually tell who is more supportive of terror groups along a political spectrum, and hatred makes for a good seller sometimes. This predicts that some politicians (countries) you will create lower barriers to entry, or even offer subsidies, as you point out.

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  3. Brilliant piece.
    Microecon 101 will tell you that consumer tastes are harder to quantify and qualify and hence was born the concept of an ordinal ‘utility’ function that would explain (or at least rationalise) the behaviour of human beings in economic terms.

    My point being that the jihadis gain a massive latent, unobservable utility payoff by their vile acts and no amount of commodity sanctions can fight their wickedness. We oughtta hit them where it hurts most, by choking the supply of gratification to these bastards – start by
    [1] banning media coverage of their more despicable, publicity-hungry acts (you only have to refer to the bigkey videos to know what I’m saying)
    [2] refer to them only as “vile/evil islamic terrorists” and no more as ‘militants/insurgents/miscreants/resistance fighters’ etc.
    [3] ANY form of support or sympathy be considered terrorism – whether it’s ‘charitable’ donations to Hamas or publicly expressed views sympathetic to terrorists (Yeah, sure, waht about the freedom of expression, some wil ask…. Why don’t they go defend legalising heroin/cocaine/child porn then? If that’s too dastardly to defend/justify, then why isn’t terrorism? Freedom of speech doesn’t mean abuse of freedom.)
    [4]A ‘reciprocal rights’ arrangement wherein organizations from the middle eastern countries – charitable or otherwise – would have only as much freedom in India or the west as those countries permit our organizations in their homelands. Thus in one fell swoop, you kill all this financial support to mosques and radical clerics in infidel lands under the garb of charity and religious work.
    The economics of terror needs to be widely read and understood by govt officials everywhere in the free world.

  4. sudhir –

    You posted a very inspiring response to the economics of terrorism. Both the article and your response would do well to be posted again. May I suggest you visit jihadwatch.com and post it there. The link to this blog was posted on the message board at jihadwatch this morning (re article: US had plans to invade Pakistan).

    Looking forward to seeing your post there! 🙂

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  7. Terrorism obviously has an economic component. bin Laden essentially imposed a security tax on the American economy, “taxation without representation” you might say. So it is appropriate to use economic means to remove the financial support he has for his activities.

    There is another aspect to fighting terrorism besides the usual networking theories and such. (I.E., What communication should we distrupt?) An interesting comparison can be made between terrorism and the financial market. Benoit Mendelbrot pointed out that Cauchy’s distribution works better at describing the financial market than the traditional Gaussian distribution (Bell Curve and all that). That would seem to imply that a Cauchian distribution, or something similar to it, could be used to describe in a statistical fashion the behavior of terrorists. This would lead to better risk assessments and a more effective distribution of our limited resources in fighting terrorism. How’s them ducks?

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