Rational Overreaction to Terrorism

Some terrorist organizations provoke their targets into deploying massive countermeasures, allowing terrorists to mobilize a greater share of their audience. Why would a government pursue such a costly strategy if it only strengthens the opponent? I develop a signaling model of terrorism, counterterrorism, and recruitment. If a target government is unsure whether the terrorists’ audience is sympathetic to the cause, weaker groups sometimes bluff strength by attacking. To check this bluff, governments sometimes respond to attacks with large-scale operations, even though they know they might be overreacting. Comparative statics reveal that overreaction regret is most likely when the target is wealthy and large operations are more effective. Thus, a selection effect creates the false impression that provocation is most effective against geopolitically privileged targets.