Skip to main content

Third Quarter 2023, 
Vol. 105, No. 3
Posted 2023-07-14

The Trade-Offs of Counterterrorism Policies

by Subhayu Bandyopadhyay and Todd Sandler


This article provides a modern overview of counterterrorism tools and their trade-offs for curbing terrorist attacks and their consequences. Defensive and proactive countermeasures constitute two main classes of counterterror tools deployed by targeted governments. The primary drawback of defensive actions, which make terrorist attacks more costly and less apt to succeed, is attack transference that shifts the mode, venue, or target of attacks to those less protected. In contrast, offensive proactive measures, which confront the terrorists directly, may result in backlash as terrorist sympathizers, the public, and state sponsors augment their terrorist support resulting in more recruitment and attacks. Other essential trade-offs are identified and discussed. Additionally, we formulate a two-stage canonical game-theoretic model involving a targeted government and a terrorist group adversary. This model accounts for defensive and proactive policies but also myriad scenarios. As such, it serves as a foundation to explain the modern counterterrorism literature as illustrated by a discussion of iconic contributions to the study of counterterrorism.

Subhayu Bandyopadhyay is a research officer and economist at the Federal Reserve Bank of St. Louis. Todd Sandler is Vibhooti Shukla Chair Emeritus at the University of Texas at Dallas. The authors thank an anonymous referee for helpful comments.


Terrorism is the premeditated use or threat of violence by individuals or subnational groups to obtain one or more political objectives through the intimidation of a large audience beyond that of the immediate victims (Enders and Sandler, 2012, p. 4). The two key definitional ingredients are the associated violence and the necessary political objective. The terrorists employ attention-catching violence to threaten citizens as a means to circumvent elections, making their demands directly to government officials. Without some political goal, violence-backed extortion constitutes a crime but not terrorism. Terrorists' political aims may assume sundry forms including policy changes, regime alteration, territorial claims, political prisoner release, terrorist group political recognition, and income redistribution. The practice of terrorism involves at least three stakeholders: the terrorists or their group, the targeted government, and the impacted audience. Terrorists employ violence to induce at-risk citizens to pressure their government to grant terrorists' political concessions to end the violence.

Two decades have passed since the four al-Qaida skyjackings on September 11, 2001 (henceforth 9/11) killed almost 3,000 and injured over twice that number, and terrorism remains a significant global security threat. The public's apprehension is reinforced periodically by subsequent deadly and costly terror attacks worldwide, including the Madrid commuter trains and stations bombings on March 11, 2004, killing 193; the Beslan barricade hostage seizure of schoolchildren and parents on September 1, 2004, killing 333; the London underground and bus bombings on July 7, 2005, killing 56; the Mumbai bombings and armed attacks on November 26, 2008, killing 175; the Paris-coordinated bombings and armed attacks on November 13, 2015, killing 130; and so many others (see, e.g., Enders and Sandler, 2012, pp. 349-52). 

In light of such threats, the authorities must allocate their scarce counterterrorism resources in an effective way to not only protect citizens and property but also curb terrorism-induced economic losses. The losses of venue countries, which host the terrorist attacks, involve foreign direct investment (Abadie and Gardeazabal, 2003, 2008; Bandyopadhyay, Sandler, and Younas, 2014; Enders, Sachsida, and Sandler, 2006; Enders and Sandler, 1996, 2004); economic growth, investment, and consumption (Blomberg, Hess, and Orphanides, 2004; Blomberg, Hess, and Weerapana, 2004; Eckstein and Tsiddon, 2004; Keefer and Loayza, 2008; Gaibulloev and Sandler, 2009, 2011, 2023); international trade (Bandyopadhyay, Sandler, and Younas, 2018, 2020; Mirza and Verdier, 2014; Nitsch and Schumacher, 2004); tourism (Drakos and Kutan, 2003; Enders, Sandler, and Parise, 1992); and stocks and bonds (Kollias, Papadamou, and Arvanitis, 2013).

In the case of economic growth and macroeconomic aggregates, the literature shows that terrorism-­generated influences are greater in developing economies than in developed economies (Gaibulloev and Sandler, 2008). The average developed economy can generally withstand terrorism with little effect on macroeconomic growth, investment, or consumption except in the instance of sustained terrorist campaigns in smaller economies (Eckstein and Tsiddon, 2004; Gaibulloev, Sandler, and Sul, 2014; Sandler and Enders, 2008). However, Brodeur (2018) finds that large localized economic consequences can occur in close proximity to terrorist attacks by adversely affecting jobs and earnings (see also Abadie and Gardeazabal, 2003, for the Basque Country in Spain).

Modern-day theoretical studies of counterterrorism build game models where the targeted government takes defensive and/or offensive measures, followed by attack campaign choices by the terrorists in response to the government's policy choices. Government actions take the form of policies that raise the cost of terrorist attacks, destroy the assets of terrorist groups, or reduce the cost of nonviolent acts (Gaibulloev and Sandler, 2019; Schneider, Brück, and Meierrieks, 2015). In particular, defensive or protective countermeasures intend to either raise the cost of terrorist attacks or limit their likelihood of success (Enders and Sandler, 1993; Landes, 1978). In contrast, proactive or offensive countermeasures are meant to capture or kill terrorists, punish their families or supporters, destroy groups' infrastructure (e.g., training camps or bomb factories), infiltrate groups, or gain intelligence. Additionally, the government can engage in conciliatory measures that reward peaceful acts by the terrorists as a means of lowering the relative cost of nonviolent actions (Dugan and Chenoweth, 2012; Frey and Luechinger, 2003). Throughout the article, each type of counterterrorism action is tied to positive and negative trade-offs that must be weighed when being deployed.

Our study aims to provide an up-to-date overview of governments' rich array of counterterrorism actions in our quest to identify important trade-offs associated with the three main kinds of countermeasures, with a particular focus on defensive and proactive responses in our canonical model of counterterrorism. Knowing these trade-offs better allows targeted governments to compare alternative countermeasures when choosing to rely on diverse antiterrorism actions. Our canonical model is capable of forming a foundation for much of the modern counterterrorism literature as demonstrated by selected applications to the literature that follow the model's formulation. For instance, our model can allow a targeted government to tailor its foreign aid package to a developing country hosting a terrorist threat (Azam and Thelen, 2010; Bandyopadhyay, Sandler, and Younas, 2011; Bapat, 2011) or to permit a targeted government to determine its immigration policy for a developing country hosting a resident terrorist group, which poses a threat to the developed country (Bandyopadhyay and Sandler, 2014). Given the vast counterterrorism literature, our presentation is understandably eclectic by concentrating on primary concepts and influential contributions.

Read the full article.