Intertemporal Versus Spatial Externalities in Counterterror Policy Games

This paper studies a dynamic game between two national governments that fight a common terrorist organization that is seeking to mount a transnational terror campaign. It is the first examination that combines the temporal externalities associated with a sustained campaign with the spatial externalities that occur when the effects of one government’s counterterror policy spill over into another country. We consider two types of noncooperative behavior; one in which national authorities are sensitive to the reactions of the terrorists on foreign soil and another in which they are insensitive. It is shown that foreign terrorist sensitivity is preferred to insensitivity. Moreover, unilaterally accounting for terrorist reactions on foreign soil can be preferred to full policy coordination between governments. This then feeds into policy recommendations as to when each nation finds it desirable to coordinate transnational counterterror policy.