The International Commission on Economics and Security (ICOES) is a project of the Transatlantic Institute. ICOES has been established to provide a forum for research into the analysis of security questions using the techniques of economics. The chairman of ICOES is William Arthurs.
The International Relations and Security Network's Study Group on the Economics of Terrorism's homepage has links to presentation synopses and slides from a one-day symposium held in Zurich on 28 June 2006, "Terrorism, Small Arms and Infrastructures".
Formed in 1989, ECAAR, Economists Allied for Arms Reduction, was renamed and reorganized in 2005 as Economists for Peace and Security. The UK affiliate of Economists for Peace and Security has launched a new journal, The Economics of Peace and Security Journal. The first issue (January 2006), on Conflict and Development, can be downloaded free of charge.
Editors Jurgen Brauer and J. Paul Dunne write: "The idea that led to this new journal was conceived long before the twin towers of New York City's World Trade Center fell in 2001. Even then we perceived an urgent need to produce and present a compact, well-written set of essays highlighting some of the many economic aspects surrounding questions of conflict, war, and peace.
"This is the first issue, and volume, of a new journal, The Economics of Peace and Security Journal, addressing themes relating to the economics of conflict. This issue's theme is Conflict and Development, and we are fortunate to count among our contributors a former chief economist of the World Bank, Nobel Laureate Joseph Stiglitz, now a professor at Columbia University in New York, as well as a former chief research officer of the Bank, Paul Collier, who recently returned to a professorship at Oxford University. Although all of our authors speak only for themselves, it is naturally of interest to learn what former high-level officials think about how conflict and development are related. Stiglitz and Collier provide the opening essays, the former looking at the matter from a theoretical perspective, the latter summarizing extant empirical findings..."
Following on from the item above, readers may like to be reminded of some of Professor Collier's research on civil conflict at the World Bank, where he was research director from 1998 to 2003:
Greed and Grievance in Civil War, Vol 1 (2000), Paul Collier and Anke Hoeffler. "Of the 27 major armed conflicts that occurred in Civil War in 1999, all but two took place within national boundaries. As an impediment to development, internal rebellion especially hurts the world's poorest countries. What motivates civil wars? Greed or grievance?"
Greed and Grievance in Civil War (2001), Paul Collier and Anke Hoeffler. "We investigate the causes of civil war, using a new data set of wars during 1960-99. Rebellion may be explained by atypically severe grievances, such as high inequality, a lack of political rights, or ethnic and religious divisions in society. Alternatively, it might be explained by atypical opportunities for building a rebel organization. Opportunity may be determined by access to finance, such as the scope for extortion of natural resources, and for donations from a diaspora population. Opportunity may also depend upon factors such as geography: mountains and forests may be needed to incubate rebellion. We test these explanations and find that opportunity provides considerably more explanatory power than grievance. Economic viability appears to be the predominant systematic explanation of rebellion. The results are robust to correction for outliers, alternative variable definition, and variations in estimation method."
Robert Powell's recent paper Defending Against Terrorist Attacks with Limited Resources (August 2005) offers a model of resource allocation against a strategic adversary and characterises the equilibrium allocation.
"This paper develops a framework for analyzing a defender's allocation of scarce resources against a strategic adversary like a terrorist group in four settings: (i) a baseline case in which the sites the defender tries to guard are 'independent' in that resources dedicated to protecting one site have no effect on any other site; (ii) if the defender can allocate its resources to border defense, counter-terrorist operations, or intelligence activities in addition to defending specific sites; (iii) if threats have strategic and non-strategic components (e.g., the threat to public health from bio-terror attacks and the natural outbreak of new diseases); and (iv) if the defender is unsure of the terrorists' preferred targets. The analysis characterizes the defender’s optimal (equilibrium) allocations in these settings as well as an algorithm or approach to finding them.
"...At the equilibrium allocation, the marginal cost of... spending less on border defense, non-strategic threats, or guarding against a particular type of adversary just offsets the marginal gain of spending more on site defense, protecting against strategic threats, or hedging against the possibility of facing a different type of attacker."
Chen and Siems' paper The effects of terrorism on global capital markets, (European Journal of Political Economy, Vol. 20 (2004), 349–366) analyses empirical stock market data over several decades and concludes:
"We conclude that terrorist attacks and military invasions have great potential to affect capital markets around the world in a short period of time. In today's information-oriented world, news travels very fast and contagion can spread quickly. We find evidence, however, that U.S. capital markets seem to have become more resilient and are better able to absorb shocks brought on by such events. We also find evidence that an economy’s banking/ financial sector seems to be an important force in returning markets to relative stability. Finally, to increase market stability, policymakers and regulators around the world should be aware of these strong forces and the inter-relatedness in global capital markets and, thus, proactively share information in a timely manner in a move toward greater global cooperation and communication."
Abadie and Gardeazabal's recent paper Terrorism and the World Economy (August 2005) argues that "mobility of productive capital in an open economy may account for much of the difference between the direct and the equilibrium impact of terrorism" and that "terrorism may have a large impact on the allocation of productive capital across countries, even if it represents a small fraction of the overall economic risk."
"If terrorism is a local phenomenon, capital will tend to flow to destinations without a terrorist threat, reducing net foreign investment in the economies affected by terrorism. Even if terrorism is a global threat, international investment will respond to differences in the expected intensity of terrorism across countries."
The authors conclude that "the 'open-economy channel' impact of terrorism may be substantial."
Readers will be interested in a recent paper by Gary Becker and Yona Rubinstein, Fear and the Response to Terrorism: An Economic Analysis (August 2004), which is discussed in The Economist (23 July 2005):
'...In the aftermath of September 11, terror is no longer a phenomenon limited to particular areas of conflict. Outside academic journals it is common knowledge that the likelihood to be harmed by terror is very low. The "intense fear which is somewhat prolonged and refer to imagined or future dangers" (Webster Encyclopedic Unabridged Dictionary) is often attributed to peoples' "ignorance", either of the objective probabilities or the underlying process that generate a shock to the economy. Contrary to these explanations, we put forward an alternative theory based on the framework of a rational choice model.
'We point to the role of fear. We argue that an exogenous shock to the underlying probabilities to be harmed affects peoples' choices in two different channels: (i) the risk channel: by changing the weights of the "good" and the "bad" states, as in the standard expected utility models; (ii) the fear channel: unlike the standard models, the probability to be harmed affects persons' utility in each state of nature. Fear can be managed. Persons can handle their fears. They do so by accumulating the necessary skills. Like other investments in human capital, it is not a free-lunch and it does not pay back the same to anyone. Those who are more likely to benefit from the risky activity will invest and overcome their fears, while others will substitute the risky activity by other consumption or production plans...'
Past event: "Can economics help us to understand security problems?", Monday 27 June 2005, 11-30 am, at the European Institute, London School of Economics. For more information, see flyer (PDF). We will publish the paper delivered at this event in hardcopy in late 2005. Download the paper (PDF).
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