The deterrence of terrorism: Terrorist rationality and government signaling

It is natural to model terrorist bargaining situations as games of incomplete information. From these models one may gain insight into policy considerations concerning optimal use of a government's private information. In particular, we explore the importance (or lack thereof) of governments hiding their levels of deterrence from terrorists. Conditions are derived under which revealing private deterrence information is an optimal strategy. In addition, we explore reputation building by the government in the ongoing struggle with terrorists. Government reputation building is modeled similarly to recent models of predation as reputation building in contested markets. A weak condition under which governments build reputations is derived.;Many terrorist bargaining situations involve ransom demands. The degree to which errors in evaluating the value of hostages will cause terrorists to make suboptimal ransom demands is unclear. We explore two notions of rationality about terrorist ransom demands. Terrorist rationality is measured using estimates from a spline function. Specific conditions about the parameter estimates allow us to make inferences about the rationality of terrorists' ransom demands given the government's utility maximizing responses. In this estimation we also explore whether the United States and Israel back articulated no-negotiation policies with action and test a reputation building hypothesis.