Table of Contents

The Economic Costs and Consequences of Terrorism

The Economic Costs and Consequences of Terrorism

Edited by Harry W Richardson, Peter Gordon and James E. Moore II

This landmark book covers a range of issues concerning the consequences of terrorist attacks. Beginning with a discussion of new policies and strategies, it then delves into specific areas of concern, modeling a range of possible scenarios and ways to mitigate or pre-empt damages.

Chapter 2: Terrorism: Considering New Policies

Bruno S. Frey and Simon Luechinger

Subjects: economics and finance, public sector economics, environment, disasters, politics and public policy, terrorism and security


Bruno S. Frey and Simon Luechinger Politics focuses almost exclusively on deterrence in its fight against terrorism. In striking contrast to the prominence given to deterrence, the evaluation of this strategy by many renowned terrorism experts is unfavorable. Hoffman (1998, p. 61), for example, claims that countless times ‘attempts by the ruling regime to deter further violence . . . backfired catastrophically’. In this chapter we argue that there are superior strategies to deterrence. In contrast to raising the direct costs of terrorism, as is the case with a deterrence policy, terrorists can be effectively dissuaded from attacking either if the utility of committing an attack to the terrorists is lowered or if the opportunity costs are raised. We propose three strategies to deal with terrorism, the first two aiming at lowering the utility of terrorism to terrorists, the third attempting to raise the opportunity costs: 1. Polycentricity. A system with many different centers is more stable than a more centralized one. When one part of the system is negatively affected, one or several other parts can take over. A prospective target of terrorist attacks can reduce its vulnerability by decentralizing the economy, the polity and the society. Terrorists are aware of this reduced vulnerability and are, therefore, dissuaded from attacking. 2. Diffusing media attention. The relationship between terrorists and the media can be described as ‘symbiotic’. Both want to make news. One way to ensure that terrorists derive lower benefits from terrorism would be for...

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