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Economics of terrorism

india Updated: Feb 11, 2007 03:34 IST

Economics is no longer only about taxes. These days it's getting more interested in death — or the threat of it.

Ask Satya P Das, professor of economics at the Indian Statistical Institute, Delhi. Using game theory, Das and his collaborator, Sajal Lahiri of the Southern Illinois University, have recently developed a model of terrorist activity. In a paper published by the Berkeley Electronic Press six months ago, the two trade theorists have come up with what they call 'the puppy dog strategy', in which a state is more likely to take a reactive position to the actions of a terrorist organisation.

They conclude that if the state's reaction is offensive, it is likely to reduce the number of terror acts, but increase their size. The paper also looks at the "supply side of terrorists", where it models an individual's decision to become a terrorist or a financier.

"We were not looking at how the state or the terrorist organisation should work, but about the impacts we are likely to see," says Das. "No normative questions have been asked yet. Also, we haven't yet looked at things like the use of intelligence in fighting terrorism — that's quite different from security measures."

The paper stands apart in India's economic literature because it's only the second one that has theorised on terrorism. The first was a 2004 paper by Vivekananda Mukherjee and Gautam Gupta of the Jadavpur University, titled The Veerappan model: Impact of terrorism on forest conservation. Also, though the last two decades have witnessed a steady increase in economic studies of terrorism, most of them have been empirical works on causes, effects and funding mechanisms; theoretical works have been much slower in coming.

Das says, "In economic theory we tend to build a simple core, and then slowly build an empire around it." He has taken the first steps towards his own empire. He has written two more theoretical papers — as yet unpublished — on terrorism. One, co-authored with Lahiri, looks at the effects of visa screening on the "collateral import of terrorism", and another on time-cycles of terror acts.

The world took note of this burgeoning field in 2005 when Robert Aumann and Thomas Schelling were awarded the Nobel Prize for their seminal work on
conflict theory, something that has inspired and influenced a lot of work
in this field. Aumann's work has been used by the government of Israel, among others, to justify the use of credible deterrence in maintaining peace.

But has any of the esoteric modelling on terrorism found use in policy? Todd
Sandler, Vibhooti Shukla Professor of Economics at the University of Texas at
Dallas and a pre-eminent expert in this field with three books and more than 25 articles, told Sunday HT, "Let's just say the [US] Department of Homeland Security supports such modelling."

Is our defence establishment listening?

Email Amitava Sanyal: amitava .sanyal@hindustantimes.com

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