Al Qaeda and Jihadist Terrorism in the light of contest theory A theoretical note and empirical evidence for the period

1. Al Qaeda and Jihadist Terrorism in the light of contest theoryA theoretical note and empirical evidence for the period 2004-2008 Raul Caruso Università Cattolica del Sacro Cuore di Milano raul.caruso@unicatt.it Friedrich Schneider Johannes Kepler University of Linz friedrich.schneider@jku.at

2. 1. Introduction

3. Economic Explanations of Terrorism • Krueger and Maleckova (JEP, 2003),Li ( JCR, 2005), Blomberg, Hess and Weerapana (EJPE, 2004), Abadie (AER, 2006), Berrebi (PEPS, 2007), Benmelech and Berrebi (JEP, 2007), Freytag, Kruger and Schneider (wp,2008), Sayre (PEPS, 2009).

4. 1.1 Classical Economic interpretations of terrorism • Opportunity cost argument. That is, the larger is the set of economic opportunities for an individual the lower is the likelihood or the willingness for him to be involved in a terrorist activity. Consequently, low-income and poorest countries would be the natural incubators of terrorism. • Productivity argument which stresses the positive relationship between education and terrorist activity. That is, better educated individuals would also become more productive and bloodier terrorists.

5. 1.2 Novelty of present work • In this work we present two main contributions to the economic interpretation of terrorism: • This paper interprets terrorist incidents in the light of the contest theory. • The paper studies only the Al Qaeda-style terrorism. This makes the analysis peculiar and focused on radical jihadist groups. It cannot be compared with foregoing studies. • In the empirical application, the dependent variable is the number of casualties and not the incidence of terrorism in itself.

6. 1.3 To start: Few insights • Al Qaeda does not retain a clear hierarchical line of command. In particular, this flexibility allows for a novel recruitment system. In fact, the recruiting process may now resemble a kind of voluntary application to join the organization • In this view, new groups are involved in the organization as the result of a selection process amongst different volunteers. The rise of the so-called ‘self starters’ is taken as evidence of this, i.e. groups with little or no affiliation with the network perpetrating terrorist attacks on their own initiative • In particular, attacks in Instanbul (November 2003), Madrid (March 2004), London (twice in July 2005) seemed to confirm the emergence of such phenomenon. Cozzens (2005).

7. 2. Contest Theory

8. Contests: theoretical underpinnings • A contest is commonly defined as a game in which players compete for a prize by making irreversible outlays. In other words, contests are situations in which rational agents spend resources in order to win a prize. The characteristic feature of this interaction is that resources are spent irreversibly. They are also labelled as all-pay auctions.

9. Contests • Examples: • Rent-Seeking and Lobbying • Sport Tournaments • Patent Races • Lawsuits • Career Incentives • Academic Competition • Main References:Tullock (1980), O’Keeffe, Viscusi, Zeckhauser (1984); Rosen (1986); Dixit (1987); Hillman and Riley (1989), Nti (1999/2004); Baik (1998), Szymanski (2003), Amegashie (2006). Moldovanu, Sela (2001), Moldovanu, Sela, Shi (2007). Konrad(2009)

10. Contests: general • The probability of winning of each agent in a contest depends upon the ratio between its own effort and the total effort. • The effort of each contestant is increasing in the value of the prize. • The higher is the number of contestants the lower is the effort of each contestant • When the prize is equally evaluated, contestants exert the same level of effort • In the presence of asymmetry in the evaluation of the prize, low evaluation players may give up

11. 3. Deadly Contests

12. 2.1 Al Qaeda as a contest organizer • Al Qaeda may be portrayed as a contest organizer providing a prize to the best terrorist group. • The prize could be assumed to be some sort of ideological blessing (being accepted as a full and honourable member of the organization) as well as economic reward.

13. 2.2 Deadly Contests • Candidate terrorists must then compete with each other to prove their commitment and ability. Each candidate group observes the results of some previous attacks. Candidate terrorist groups compete by maximizing their efforts to win the prize, i.e. maximizing the number of casualties. • In particular, to maximize their own probability of winning the prize, each group tries to make attacks at least equally destructive as the previous attacks.

14. 4. Peculiarities of our current approach

15. 3.1 Uncertainty about the number of contestants • (1) Presumably, a crucial information which is not publicly available is the number of contestants. Namely, participants do not know (at least not exactly) the number of contestants. As noted in Munster (2006, PC) this increases the total level of efforts exerted.

16. 3.2 Information costs • (2) monitoring and information costs are close to zero. When a terrorist group bombs an embassy or a trade centre with dozens of casualties somewhere in the world, the event is extensively broadcast by international mass media. (see Rohner and Frey, PC, 2007 for an empirical evidence of such association).

17. 5. Empirical application

18. 4.1 Testable implication • In the presence of a contest, each candidate group observes the results of some previous attacks. Hence to maximize their own probability of winning the prize, each group (maximizes its effort) tries to make attacks at least equally destructive as the foregoing attacks. • The testable implication is that: the number of victims of terrorist attacks is significantly associated with the number of victims of past attacks.

19. 4.2 Empirical application • Another assumption is that presumably if a tournament takes shape it does at a national level. Perhaps, Al Qaeda tries to recruit national champions. • Secondly, it is possible that terrorist waves may emerge.(namely a tournament takes place at a certain time)

20. Dec2004-Feb2005 Terrorist waves Jan-Febr 2004

21. Contest Opportunity cost argument Productivity argument Opportunity cost argument

22. 4.3 Empirical Evidence: Sample • The sample covers 22 countries for period Jan 2004 – March 2008. • (Algeria, Bangladesh, Egypt, Eritrea, Ethiopia, France, India, Indonesia, Iran, Jordan, Pakistan, Philippines, Qatar, Russia, Saudi Arabia, Spain, Syria, Thailand, Turkey, UK, Uzbekistan, Yemen)

23. 4.4 Empirical Evidence: Data • Filters: • Only Islamist extremism and IED (as reported in NCTC) • Potential Outliers excluded: Afghanistan, West Bank and Gaza strip, Iraq, Israel; • Attacks to facilities (ex. Pipelines) excluded; • Assasinations (or tentative) of political leaders excluded; See the Manchester Manual available at .

25. 6. Summary of findings and Policy Implications

26. 5.1 Summary of findings • The number of victims is significantly and positively associated with the number of victims of the previous incident in the same country. • The number of victims is decreasing in (i) the GDP per capita or alternatively (ii) in the HDI.

27. 5.2 Policy Implications • A general improvement of standard of living has the potential to reduce the likelihood (or even the brutality) of terrorist attacks. In fact, results show a negative association between number of victims and HDI and GDP per capita alternatively. • Since reward to would-be terrorist groups is expected to be monetary, therefore, tracking financial flows of terrorist organization becomes a critical task. The argument for an international cooperation on regulating financial flows is thus strengthened.