Terrorism, Counterterrorism and Optimal Striking Rules

We study a simple mechanism design problem that describes the optimal behavior of a country targeted by a foreign terrorist group. The country is uncertain about the terrorists’ strength and may decide to acquire such information from the community hosting the terrorists. We highlight a novel trade-off between target hardening – i.e., mitigating the incidence of an attack by strengthening internal controls and improving citizens’ protection – and preemptive military measures aimed at eradicating the problem at its root – i.e., a strike in the terrorists’ hosting country. We show that, conditional on being informed about the terrorists’ strength, the country engages in a preemptive attack only when it faces a sufficiently serious threat and when the community norms favoring terrorists are weak. Yet, in contrast with the existing literature, we show that it is optimal for the country to acquire information only when these norms are strong enough and when its prior information about the terrorists’ strength is sufficiently poor.