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The 'Price' Of Terrorism


  • Peter Phillips


Security measures are said to increase the price of terrorism. This price has not been hitherto defined in an economically meaningful way. This paper provides a precise definition by treating the terrorists' resource endowment as a parcel of contingent claims to political influence with a price equal to the summed value of those contingent claims in potential states of the world. Equipped with this definition, an equilibrium model of the price of terrorism is deployed. Important insights are gained into the effect of terrorists' risk aversion at the level of the price of terrorism in different states of the world and the theoretical conclusion is reached that higher security is associated with a lower price of terrorism rather than a higher price. The implications for policy are discussed.

Suggested Citation

  • Peter Phillips, 2005. "The 'Price' Of Terrorism," Defence and Peace Economics, Taylor & Francis Journals, vol. 16(6), pages 403-414.
  • Handle: RePEc:taf:defpea:v:16:y:2005:i:6:p:403-414 DOI: 10.1080/10242690500115931

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    References listed on IDEAS

    1. Lapan, Harvey E & Sandler, Todd, 1988. "To Bargain or Not to Bargain: That Is the Question," American Economic Review, American Economic Association, vol. 78(2), pages 16-21, May.
    2. Bruno S. Frey & Simon Luechinger, "undated". "How to Fight Terrorism: Alternatives to Deterrence," IEW - Working Papers 137, Institute for Empirical Research in Economics - University of Zurich.
    3. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-1445, November.
    4. Sandler,Todd & Hartley,Keith, 1995. "The Economics of Defense," Cambridge Books, Cambridge University Press, number 9780521447287, March.
    5. repec:cup:apsrev:v:77:y:1983:i:01:p:36-54_24 is not listed on IDEAS
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    Cited by:

    1. Friedrich Schneider & Tilman Brück & Daniel Meierrieks, 2010. "The Economics of Terrorism and Counter-Terrorism: A Survey (Part I)," Discussion Papers of DIW Berlin 1049, DIW Berlin, German Institute for Economic Research.
    2. Peter Phillips, 2011. "Terrorists’ Equilibrium Choices When No Attack Method is Riskless," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 39(2), pages 129-141, June.


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