The definitive version is available at www.blackwell-synergy.com DOI: 10.1111/joes. 12060 Journal of Economic Surveys 29(1), 131-157. Please cite the article accordingly. The Economics of Counter-Terrorism: A Survey Friedrich Schneider , Tilman Brückt and Daniel Meierrieks+ Abstract We provide a review of theoretical and empirical contributions on the economic analysis of terrorism and counter-terrorism. We argue that simple rational-choice models of terrorist behavior-in the form of cost-benefit models-already provide a well-founded theoretical framework for the study of terrorism and counter-terrorism. We also hint at their limitations which relate to the failure of accounting for the dynamics between terrorism and counter-terrorism that may produce unintended second-order effects as well as for the costs associated with counter-terrorism and its international dimension. We reevaluate previously proposed counter-terrorism strategies accordingly. Finally, in the light of our findings we discuss interesting areas of future research. Keywords: terrorism; counter-terrorism; rational-choice models; backlash Total Word Count: 13,897 * University of Linz, Department of Economics, Altenbergerstraße 69, 4040 Linz-Auhof, Austria. E- mail: friedrich.schneider@jku.at. + Stockholm International Peace Research Institute, Signalistgatan 9, 16970 Solna, Sweden. E-mail: brueck@sipri.org. # Corresponding Author. University of Freiburg, Department of Economics, Wilhelmsstraße 1b, 79098 Freiburg, Germany. Phone: +49-(0)761-203-67653. Fax: +49-(0)761-203-67649. E-mail: daniel.meierrieks@vwl.uni-freiburg.de. 1
1. Introduction The terrorist attack on New York and Washington, D.C., on September 11, 2001 ushered in-in many ways-a new era. Amongst others, these attacks were the catalyst for a renewed interest in the economic analysis of terrorism to better understand this-seemingly unreasonable-phenomenon. Sandler and Enders (2004, p.302) define terrorism as the "[ ... ] premeditated use, or threat of use, of extranormal violence to obtain a political objective through intimidation or fear directed at a large audience." Similarly, the Global Terrorism Database (GTD) defines terrorism as any action by a non-state actor outside the context of legitimate warfare with the intention to coerce, intimidate or communicate with an audience larger than the immediate victims, so as to achieve politico- economic goals (Drakos, 2011, p.151).1 Figure 1 uses data from the GTD to illustrate the global patterns of terrorism over time.2 It shows that terrorism is not a phenomenon that is likely to go away.3 Rather, trends in terrorism and globalization may magnify the terrorism threat. For instance, the recent wave of Islamist terrorism (Al-Qaeda and its affiliates) is particularly dangerous due to its use of (suicide) terrorism as a means to produce mass casualties (Piazza, 2009). Also, international linkages (e.g., trade, global production networks, refugee flows) and modern means of communication are expected to contribute to a more rapid spread of violence across borders, which may increase the politico-economic vulnerability of societies to terrorism. -Figure 1 here- 1 There is, however, no academic consensus regarding a definition of terrorism (Weinberg et al., 2004). For instance, this is due to the proximity of terrorism to organized crime (Bovenkerk and Chakra, 2004) and guerilla warfare within civil wars (Sambanis, 2008; Findley and Young, 2012). 2 The GTD collects data on domestic and transnational terrorism. Transnational terrorism involves more than one country (e.g., due