Introduction: Advances in the Study of the Economics of Terrorism

Although the study of the economics of terrorism dates back to 1978, work on this topic was sporadic until 2001. Since the four hijackings on September 11, 2001, there have been many contributions both theoretical and empirical in this area of study. The purpose of this article is twofold: (i) to orient the reader to this area of study, and (ii) to introduce the five articles of this special symposium. These articles address diverse aspects of the economics of terrorism including the demise of terrorist groups, natural disasters and terrorism, cost of living and terrorism, terrorism and stock‐bond returns, and terrorism and piracy.     

Exploiting the Chaos: Terrorist Target Choice Following Natural Disasters

This article explores the differences between transnational and domestic terrorism, further differentiating by private versus government targets, to estimate the effect of exogenous catastrophic shocks on a country's level of domestic and transnational terrorism. The empirical analysis uses detailed data on terrorism, natural disasters, and other relevant controls for 176 countries from 1970–2007 to illuminate several key disparities in a postdisaster target choice of terrorists. The results indicate that natural disasters incite both transnational and domestic terrorism; however, evidence is found for dissimilar motivations between the two. While both types of terrorism increase after disasters, transnational attacks against the government increase immediately following the disaster, suggesting an impetus to exploit weakened “hard” targets during the chaos. Conversely, domestic terrorism against the government takes longer to manifest, suggesting a period of time for which the public recovers and assesses the government's response.     

Negotiating with Terrorists: The Costs of Compliance

It is often argued that negotiating with terrorists will encourage terrorist attacks. To date, corroborating empirical evidence is scarce. Using ITERATE data, we investigate the impact of conceding to terrorist demands on terror activity. We restrict attention to hostage events with clear‐cut demands from terrorists. Our sample period runs from 1978 to 2005 and comprises 1435 events in 125 countries. Estimating a flexible and dynamic Structured Additive Regression model, we find that the percentage of successfully negotiated events has a nonlinear effect on future terror intensity consistent with our simple theoretical model. More specifically, although moderate rates of negotiation increase the number of future terror events, higher negotiation rates tend to have the opposite effect. The estimated threshold is around 20%.     

Determinants of the Demise of Terrorist Organizations

This article investigates the determinants of terrorist groups' failure by applying survival analysis in a discrete‐time specification. Our sample consists of a diverse set of 586 terrorist groups, in which just over 63% end operations (demise) during 1970–2007. We use RAND event data and Jones and Libicki terrorist group data. Findings show that the survival of terrorist groups is bolstered by diversifying attacks, having multiple home bases, locating in the Middle East, locating in a democratic country, and limiting reliance on transnational terrorist attacks. Moreover, larger groups have better survival prospects. Religious fundamentalist terrorist groups face better survival prospects than other terrorist groups. Terrorist groups located in a country with larger tropical territory are less likely to end operations; however, groups based in a landlocked country are more likely to fail.     

The Cost of Living and Terror: Does Consumer Price Volatility Fuel Terrorism?

Do fluctuations of consumer prices prompt terrorist activity? A latent assumption among conflict scholars is that price volatilities for basic consumer goods produce hardships for people that increase popular grievances, damage government legitimacy, and raise the chances for terrorism. In this study, I use a series of regression estimations to test volatility in consumer price indices for energy, housing, and foods as predictors of domestic and transnational terrorism in a cross section of countries. I produce several findings. First, food price fluctuations are significant predictors of multiple measures of terrorism, while energy and housing prices are not. Second, rapid food price increases, not decreases, promote terrorist attacks. Third, the relationship between food price volatility and terrorism is most consistently present in nondemocratic and “hybrid” political regimes and in medium human development countries rather than in democracies or in countries characterized by very high or very low economic development.     

Environmental Depletion,Governance, and Conflict

While the link between natural resource dependence and internal conflict has been approached from a variety of angles in a large and growing interdisciplinary literature, the feasibility‐discontent dichotomy still frames a fluid research agenda in both economics and political science. This article attempts to help bridge the gap by allowing for both intrinsic and extrinsic motivations of potential rebels. Simple non‐cooperative bargaining yields a nonlinear impact of regulatory quality on the likelihood of conflict and shows that corruption and resource depletion jointly affect the outcome. The empirical analysis that follows looks at the effect of environmental depletion and government corruption on the emergence of civil conflicts using a large panel data set. Resource depletion, the quality of governance, and their interaction are found to be significant determinants of civil conflict incidence. Results are robust to model and specification as well as to several steps taken to address potential endogeneity concerns.     

Economics: Friend or Foe of Politics to Support Strategically Important Domestic Industries?

Strategic goods (e.g., food and energy) are defined as necessary prerequisites for the consumption of all other goods in the economy. Private markets fail to provide efficient domestic supply because of externalities. Individuals do not consider that the consumption of a domestically produced strategic good increases domestic supply available to society if international supply is disrupted in a future crisis. Hence, there is a purely economic rationale for government support to domestic strategic industries. But political factors, such as lobbying and political short-termism, also critically influence the actual provision of strategic goods and the case for support.     

Openness of the economy,terms of trade,and arms

It is estimated that world military spending in 2011 amounted to over 2.5% of the world's Gross Domestic Product (GDP). This corresponds to a spending of $233 per person in the world at 2010 constant prices, an amount close to the GDP per capita of the poorest country in the world. Therefore, it is important for economists to understand the allocation of resources to this sector of the economy. I present a model that explores the determinants of a country's level of military spending. I show how greater gains from trade can lead to greater military expenditures to protect them. It is also found that expansion in the demand for a country's tradable commodities, that is, an improvement in that country's terms of trade, will impact defense spending. Several other propositions emerge from the model which are then empirically tested using both pooled and time series data. The statistical results support the model's propositions.     

Public budgetary rules and GDP growth: An empirical study on OECD and twelve european countries

We study the long-term effects of budgetary rules on GDP growth rate and analyse the determinants of the short-term GDP growth dynamics. For both a sample of 19 OECD and a subsample of 12 European countries, we show that, in the long run, improvements in the cyclically adjusted budget balance, as well as increases in the tax burden, have negative effects on GDP growth. The highest effect of fiscal policy on GDP growth would be obtained if the structural deficits were used to increase the market size by reducing the tax burden. In line with Barro (1990), a deficit-financed reduction of tax burden has a stronger effect for European than for OECD countries, because in Europe the government size with respect to market size is too large. Therefore, if GDP growth is a dominant policy objective, in Europe specific actions should redress the 2012 Treaty toward a reduction of the tax burden.     

Sustainability and comovement of government debt in EMU Countries: A panel data analysis

We investigate the sustainability of fiscal policy in a set of 19 European Monetary Union (EMU) countries over the period 1970–2016. Panel unit root tests in the presence of cross-section dependence show that the government debt series is stationary, indicating that the solvency condition would be satisfied for these countries. This confirms the effectiveness of the austerity measures implemented by these member states. Moreover, an unobserved common factor drives the comovement of government debt in the Eurozone.     

TO PREY OR NOT TO PREY? WELFARE AND INDIVIDUAL LOSSES IN A CONFLICT MODEL1

We analyse a generalised form of the Hirshleifer‐Skaperdas predation model. In such a model agents have a choice between productive work and appropriation. We suggest that such a model can usefully be thought of as a continuous form of the Prisoners' Dilemma. We present closed form solutions for the interior equilibria and comparative statics for all Cournot equilibria and analyse the social welfare losses arising from predation. We show that predation is minimised under two quite different regimes, one in which claiming is very ineffective and another in which one of the players becomes marginalised. The worst outcomes seem to arise when claiming is effective, but inequality in power is significant but not extreme. This, arguably, is the situation in a number of transition societies.     

Export variety and export performance: Empirical evidence for the OECD countries

Export Variety and Export Performance: Empirical Evidence for the OECD Countries. — Does product variety matter for export performance? This has been suggested by the new trade theory. In the present paper, we investigate empirically whether increasing export variety has contributed to the export growth of the OECD countries. We calculate direct measures of export variety and estimate pooled export demand equations for 15 OECD countries. The econometric results suggest that producing highly differentiated export goods gives a competitive advantage which allows to sell more products.     

Market Interaction and Pro-Social Behavior: An Experimental Study

When actions generate negative externalities for third parties, incentives exist to pass these “morally costly” decisions to others. In laboratory experiments, we investigate how market interaction affects allocations when the right to divide a sum of money between oneself and a passive recipient is commoditized. Allocation to recipients is reduced by more than half when determined by subjects who purchase or keep the right to make the division as compared to a control where subjects are directly assigned the right. Sellers report accurate beliefs about recipient allocations and do not report feeling less responsible the more often they sell the allocation right. The market allocates the right to make divisions more frequently to buyers who allocate more to recipients, but sellers who allocate less to recipients tend to sell less often. Selection cannot solely explain the results, suggesting market interaction itself may directly impact behavior.     

Multi‐battle Contests: An Experimental Study

We examine behavior of subjects in simultaneous and sequential multi‐battle contests, where each individual battle is modeled as an all‐pay auction with complete information. In simultaneous best‐of‐three contests, subjects are predicted to make positive bids in all three battles, but we find that subjects often make positive bids in only two battles. In sequential contests, theory predicts sizable bids in the first battle and no bids in the subsequent battles. Contrary to this prediction, subjects significantly underbid in the first battle and overbid in subsequent battles. Consequently, instead of always ending in the second battle, contests often proceed to the third battle. Finally, although the aggregate bid in simultaneous contests is similar to that in sequential contests, in both settings, subjects make higher aggregate bids than predicted. The observed behavior of subjects can be rationalized by a combination of multidimensional iterative reasoning and a nonmonetary utility of winning.     

Nonprofit Organization and the Division of Labor: A Theoretical Perspective

This paper asks whether nonprofit organization can have a positive rationale in an economy based on the division of labor, taking into account that the process of the division of labor occurs through profit-motivated economic behavior. By reconsidering existing economic theories of nonprofit organization in the context of the theory of the division of labor, the paper shows nonprofit organization to be an institutional consequence of two limitations on the division of labor: high coordination costs among interdependent agents and the existence of production-related, as opposed to consumption-related, preferences. These limitations prevent the system of the division of labor from fully gratifying the consumption preferences of economic agents and, thereby, create a functional niche for nonprofit organization.This research has been supported by Marie Curie Incoming International Fellowship of the Sixth Framework Program of the European Community (Contract no. MIF1-CT-2005-514036). The author is grateful to the anonymous reviewer for valuable comments. The views expressed in this publication are those of the author only. The European Commission is not liable for any use that may be made of the information contained in this publication.     

Contests and the Private Production of Public Goods

The private provision of public goods generally suffers from two types of efficiency failures: sorting problems (the wrong individuals contribute) and quantity problems (an inefficient amount is provided). Embedding the provision game into a contest that rewards larger contributions with higher probabilities of winning a prize may remedy such failures. Applications include tenure decisions at universities, electoral competition among politicians, etc. We identify a tradeoff between the value of the prize and the decisiveness of the contest. High‐powered incentives in contests may cause an overprovision of the public good or wasteful participation of unproductive individuals in the contest.     

危机冲击与全球贸易波动的经验分析

本文对近二十年来历次危机冲击下全球贸易波动的特征进行经验比较后发现:贸易波动的幅度均高于经济波动幅度,同时贸易收入弹性值有逐步增大的趋势,而危机冲击时期贸易收入弹性值呈现明显的"放大性"并有出现负值的可能。因此,贸易增速历来高于经济增速的事实,很难准确解释危机冲击下的贸易大幅度波动。危机冲击下全球贸易波动特征的演进规律及其内在作用机制,应从国际分工演进和国际贸易自身特点入手,这是值得深入研究的大课题。     

Risk‐Taking Behavior: An Experimental Analysis of Individuals and Dyads

The decision to undertake risk is often made by pairs (dyads), while much of the economics literature on risk taking focuses on the individual. We report the results of controlled laboratory experiments that compare behavior between individuals and pairs. Using the 2002 procedure and a within‐subjects design, we find that pair choices are largely consistent with subjects bargaining over the outcome rather than the pairs taking a more extreme stance than the individual members. Further, gender and age but not personality seem to influence relative bargaining weight. We also find that individuals are more willing to take risks after making decisions as part of a pair than beforehand. Both the personality of one's partner and nontask social interaction influence subsequent individual risk‐taking behavior.