Global Terrrorism: Deterrence versus Pre-emption

This paper analyzes two anti-terrorism policies ­ deterrence and preemption ­ in an environment where a targeted nation's people and property are in jeopardy at home and abroad. A country's deterrence decision involves both external benefits and costs, while its preemption decision only gives external benefits. With damages limited to home interests, a country will overdeter, while, for globlized terror, a country will underdeter. Preemption is always undersupplied. Leader-follower behavior is apt to lessen inefficiency for deterrence, but worsens inefficiency for preemption as compared with Nash behavior. Policy conclusions are drawn.