Underfunding in Terrorist Organizations

Abstract

A review of international terrorist activity reveals a pattern of financially strapped operatives working for organizations that seem to have plenty of money. To explain this observation, and to examine when restricting terrorists' funds will reduce their lethality, we model a hierarchical terror organization in which leaders delegate financial and logistical tasks to middlemen, but cannot perfectly monitor them for security reasons. These middlemen do not always share their leaders' interests: the temptation exists to skim funds from financial transactions. When middlemen are sufficiently greedy and organizations suffer from sufficiently strong budget constraints, leaders will not fund attacks because the costs of skimming are too great. Using general functional forms, we find important nonlinearities in terrorists' responses to government counterterrorism. Restricting terrorists' funds may be ineffective until a critical threshold is reached, at which point cooperation within terrorist organizations begins to break down and further government actions have a disproportionately large impact.

Moral Hazard, Discipline, and the Management of Terrorist Organizations

“…M i 's utility is 70 This differs from that in Shapiro and Siegel 2007 in the change in the definition of g i ((1 2 g) there is g in this article, and vice versa) and in an affine transformation. All logic below also generalizes trivially to the case of a general utility function as long as n(w 2 a t ;g i ) has increasing differences in a t and g i .…”

“…63 Due to security concerns and abundant outside options for the middlemen (for example, defecting in exchange for immunity), B has only two ways to condition an M's behavior: he can alter the level of funding for M's attack, or he can choose a different M. An M has even fewer options: he chooses how much of B's funding goes to the attack and how much he skims off of the top. The likelihood of a successful attack increases 64 In addition to the finite pool of heterogeneous agents, this model differs from Shapiro and Siegel 2007 in its use of a constant wage, rather than a wage that is chosen by B. This is to keep the focus on the rehiring rule of the boss, rather than on his choice of funding level.…”

Religion, terrorism and public goods: Testing the club model

“…Asal and Rethmeyer (2008) investigate organizational predictors of lethality. Shapiro and Siegel (2007) examine organizational constraints which limit lethality.…”

Foundations of the Islamic State: Management, Money, and Terror in Iraq, 2005-2010

“…27 Shapiro and Siegel, 2007. -429-AF, 2002, pp. 3-4;Sageman, 2011;and Barak Mendelsohn, "Al-Qaeda's Franchising Strategy," Survival, Vol.…”