THE SCALE OF TERRORIST ATTACKS AS A SIGNAL OF RESOURCES

This article studies conflicts between terrorists and governments in a setting of asymmetric information. The government is initially uncert ain about the level of resources available to a terrorist group for us e in violent attacks. The conflict is modeled as a signaling game wher e the magnitude of terrorist attacks serves as a signal of terrorist r esources. With complete information, optimal government retaliation de pends nontrivially on terrorist resources. With asymmetric information , this provides terrorists with an incentive to convey the message tha t resources are large in an attempt to soften government retaliation. Thus equilibrium attack levels of high resource terrorist groups must be distorted upward if they are to convey any information to the gover nment. In addition, we consider equilibria where attacks are uniformat ive of terrorist resources, but where the government softens its retal iation. In either case the government suffers under asymmetric informa tion. We examine how varying the flexibility of government responses a ffects the likely outcome of conflicts, and this gives rise to an asse ssment of the value of government intelligence gathering and (partial) government commitment.