The paper examines how two targeted countries strategically deploy their counterterror forces when lobbying defense firms influence counterterror provision. For proactive measures, lobbying activities in a single targeted country lessen underprovision, raise overall counterterrorism, and reduce terrorism. Welfare decreases in the politically influenced country but increases in the other targeted country owing to enhanced free riding. Lobbying influence on the targeted countries’ welfare is tied to terrorists’ targeting preferences and how the lobbied government weighs citizens’ welfare. For key parametric values, lobbying in both targeted countries may result in the first-best equilibrium. With two-country lobbying, international policy coordination by at-risk governments may lead, surprisingly, to less efficient outcomes than the noncooperative equilibrium. Additionally, lobby-influenced defensive countermeasures generally affect efficiency adversely.
follow @stlouisfed