The terrorist endgame - A model with moral hazard and learning

The author models the relationship between a government and former terrorists as a game with both moral hazard and learning. The government is uncertain about both the former terrorists' ability and skill at providing counterterrorism aid. The government has the option-after observing the success or failure of counterterrorism-of replacing the former terrorist leadership with a new negotiating partner. This study demonstrates that the threat of replacement, in addition to promised concessions, provides incentives for former terrorists to exert counterterrorism effort, particularly when the potential replacements are of moderate ability. Furthermore, the author identifies conditions under which governments are likely to replace the former-terrorist leadership with which it has been negotiating. The model also has implications for the effect of counterterrorism successes on future concessions and the impact of the government's ability to consider replacing the former terrorists on concessions and counterterrorism.