The economics of high-visibility terrorism Sanjay Jain a, * , Sharun W. Mukand b a Department of Economics, University of Virginia, 114 Rouss Hall, Charlottesville, VA 22903, USA b Department of Economics, Tufts University, Medford, MA 02144, USA Available online 17 April 2004 Abstract This paper analyzes some implications of very visible, discrete, large-scale terrorist actions, such as the September 11 attacks. By becoming part of the set of common knowledge, such events of mass terror have direct implications on both the supply and composition of the ‘mix’ of terrorist attacks, as well as responses to them. First, we analyze the implications of greater anti-terror operations on the quantity as well as the mix of terrorists supplied by terrorist organizations. Second, we present a novel argument for the role of public announcements in endogenously coordinating responses in the face of a terrorist-hijacking. Public announcements, by injecting strategic uncertainty, can give rise to a Pareto-superior outcome, at minimal resource cost to the government. D 2004 Elsevier B.V. All rights reserved. JEL classification: D74; D82; C72 Keywords: Mass terror; Visibility; Common knowledge; Coordination; Negotiation 1. Introduction One of the most distinct aspects of the event of mass terror witnessed on September 11th, was its ‘visibility’. The high visibility had an immediate and dramatic effect on the information sets and beliefs of all agents—potential victims, government, law enforcement agents, as well as terrorists. Although suicide attackers had previously inflicted casualties in the Middle East, and had attacked US targets in Lebanon and Yemen, the high visibility of the September 11 attacks meant that, at one stroke, the presence of suicide terrorists became ‘common knowledge’ amongst all agents. This paper analyzes the implications of such a visible event of mass terror on the incentives of terrorists, law enforcement as well as the potential victims. We use game-theoretic analysis to examine two related questions. First, 0176-2680/$ - see front matter D 2004 Elsevier B.V. All rights reserved. doi:10.1016/j.ejpoleco.2004.02.001 * Corresponding author. Tel.: +1-434-924-6753; fax: +1-434-982-2904. E-mail address: sjain@virginia.edu (S. Jain). www.elsevier.com/locate/econbase European Journal of Political Economy Vol. 20 (2004) 479–494