The Scale of Terrorist Attacks as a Signal of Resources

This article studies conflicts between terrorists and governments in a setting of asymmetric information. The government is initially uncertain about the level of resources available to a terrorist group for use in violent attacks. The conflict is modeled as a signaling game where the magnitude of terrorist attacks serves as a signal of terrorist resources. With complete information, optimal government retaliation depends nontrivially on terrorist resources. With asymmetric information, this provides terrorists with an incentive to convey the message that resources are large in an attempt to soften government retaliation. Thus equilibrium attack levels of high resource terrorist groups must be distorted upward if they are to convey any information to the government. In addition, we consider equilibria where attacks are uninformative of terrorist resources, but where the government softens its retaliation. In either case the government suffers under asymmetric information. We examine how varying the flexibility of government responses affects the likely outcome of conflicts, and this gives rise to an assessment of the value of government intelligence gathering and (partial) government commitment.