Global terrorism: deterrence versus pre‐emption

This paper analyses two anti‐terrorism policies when 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 as the terrorist threat is deflected, while its preemption decision typically gives external benefits when the threat is reduced for all potential targets. With damages limited to home interests, a country will overdeter, while, for globalized terror, a country will underdeter. Pre‐emption is usually undersupplied. Leader‐follower behaviour is apt to lessen inefficiency for deterrence, but worsen inefficiency for pre‐emption, compared with simultaneous‐choice equilibrium allocations. Targeted nations can never achieve the proper counterterrorism policy through leadership.