Abstract
Using a two stage rent-seeking framework, we present a simple model of strategic entry/terrorism deterrence and test the model using laboratory experiments. Our contest success function highlights the potential for strategic spillovers. The theory illustrates that, relative to a cooperative outcome, negative externalities lead to over-spending on deterrence and positive externalities lead to under-spending on deterrence. Our experimental results are broadly consistent; subjects in the negative externality treatment had higher expenditures. In contrast to theoretical predictions, participation decisions, while primarily driven by the probability of winning a contest, were influenced by a subject’s ability to participate in multiple contests.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Arce, D. G., & Sandler, T. (2005). Counterterrorism: A game-theoretic analysis. Journal of Conflict Resolution, 49(2), 183–200.
Bapat, N. A. (2006). State bargaining with transnational terrorist groups. International Studies Quarterly, 50, 213–229.
Brandts, J., Cabrales, A., & Charness, G. (2005). Forward induction and entry deterrence: An experiment. Available at SSRN: http://ssrn.com/abstract=486182.
Bueno de Mesquita, E. (2005a). Conciliation, counterterrorism, and patterns of terrorist violence. International Organization, 59, 145–176.
Bueno de Mesquita, E. (2005b). The terrorist endgame: a model with moral hazard and learning. Journal of Conflict Resolution, 49(2), 237–258.
Bueno de Mesquita, E. (2006). Conciliation, counter-terrorism, and patterns of terrorist violence: A comparative study of five cases. Available at http://home.uchicago.edu/~bdm/PDF/adverseterrorcases.pdf.
Bueno de Mesquita, E. (2007). Politics and the suboptimal provision of counterterrorism. International Organization, 61(1), 9–36.
Cadigan, J. (2007). Two stage team rent-seeking: Experimental analysis. Southern Economic Journal, 74(1), 85–103.
Davis, D., & Reilly, R. (1998). Do too many cooks always spoil the stew? An experimental analysis of rent-seeking and the role of a strategic buyer. Public Choice, 95, 89–115.
Dixit, A. (1980). The role of investment in entry deterrence. Economic Journal, 90, 95–106.
Enders, W., & Sandler, T. (1993). Effectiveness of antiterrorism policies: Vector-auto regression-intervention analysis. American Political Science Review, 87(4), 829–844.
Enders, W., & Sandler, T. (1995). Terrorism: Theory and applications. In K. Hartley & T. Sandler (Eds.), Handbook of defense economics (Vol. 1, pp. 213–249). Amsterdam: North-Holland.
Enders, W., & Sandler, T. (2005). After 9/11: Is it all different now? Journal of Conflict Resolution, 49(2), 259–277.
Enders, W., Parise, G. F., & Sandler, T. (1992). A time-series analysis of transnational terrorism: Trends and cycles. Defense Economics, 3(4), 305–320.
Ferrero, M. (2006). Martyrdom contracts. Journal of Conflict Resolution, 50(6), 855–877.
Fischbacher, U. (2007). z-Tree—Zurich toolbox for readymade economic experiments. Experimental Economics, 10(2), 171–178.
Jung, Y., Kagel, J., & Levin, D. (1994). On the existence of predatory pricing: An experimental study of reputation and entry deterrence in the chain-store game. The RAND Journal of Economics, 25(1), 72–93.
Kreps, D., & Wilson, R. (1982). Reputation and imperfect information. Journal of Economic Theory, 27, 253–279.
Landes, W. M. (1978). An economic study of U.S. aircraft hijackings, 1961–1976. Journal of Law and Economics, 21(1), 1–31.
Mason, C., & Nowell, C. (1998). An experimental analysis of subgame perfect play: the entry deterrence game. Journal of Economic Behavior and Organization, 37, 443–462.
Milgrom, P., & Roberts, J. (1982). Predation, reputation, and entry deterrence. Journal of Economic Theory, 27, 280–312.
Millner, E., & Pratt, M. (1989). An experimental investigation of efficient rent-seeking. Public Choice, 62(2), 139–151.
Millner, E., & Pratt, M. (1991). Risk aversion and rent-seeking: An extension and some experimental evidence. Public Choice, 69(1), 81–92.
Önçüler, A., & Croson, R. (1998). Rent-seeking for a risky rent: A model and experimental investigation. Journal of Theoretical Politics, 17(4), 403–429.
Potters, J., de Vries, C., & van Winden, F. (1998). An experimental examination of rational rent-seeking. European Journal of Political Economy, 14, 783–800.
Rosendorff, B. P., & Sandler, T. (2004). Too much of a good thing? The proactive response dilemma. Journal of Conflict Resolution, 48(5), 657–671.
Sandler, T. (2005). Collective versus unilateral responses to terrorism. Public Choice, 124(1–2), 75–93.
Sandler, T., & Arce, D. (2003). Terrorism and game theory. Simulation and Gaming, 34(3), 319–337.
Sandler, T., & Enders, W. (2004). An economic perspective on transnational terrorism. European Journal of Political Economy, 20(2), 301–316.
Shogren, J., & Baik, K. (1991). Reexamining efficient rent-seeking in laboratory markets. Public Choice, 69(1), 69–79.
Tullock, G. (1967). The welfare costs of tariffs, monopolies and theft. Western Economic Journal, 5, 224–232.
Tullock, G. (1980). Efficient rent-seeking. In J. M. Buchanan, R. Tollison, & G. Tullock (Eds.), Toward a theory of the rent seeking society (pp. 267–292). College Station: Texas A&M Press.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Cadigan, J., Schmitt, P.M. Strategic entry deterrence and terrorism: Theory and experimental evidence. Public Choice 143, 3–22 (2010). https://doi.org/10.1007/s11127-009-9488-x
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s11127-009-9488-x