“Economics and Terrorism: What we know, what we should know and the data we need”.

Centre for Economic Policy Research (CEPR)

Discussion Paper No. 6509, October 2007

F. Llussá and J. Tavares.

In this paper we organize the literature on the economics of terrorism around seven different topics, offering a comprehensive view of the literature with a view to identifying questions that remain unanswered. The chosen topic areas are: The Measurement of Terrorist Activity, The Nature of Terrorists, The Utility Cost of Terrorism, The Impact of Terrorism on Aggregate Output, Terrorism and Specific Sectors of Activity, Terrorism and Economic Policy, and Counter-Terrorism.

In a sense, we proceed from measurement issues to studies of the characteristics of terrorists and terrorist organizations, the consequences of terrorism on individual utility and, aggregate output and on specific sectors of activity, as well as the impact of terrorism on fiscal and monetary policies.

We conclude with an examination of the economics literature on counter-terrorism measures. For each of the topics above, we present what the literature has achieved, the important questions that remain open and the type of data that would help researchers make progress. In our discussion, we identify the main papers in the literature and the issue(s) where each made a contribution, presenting a brief individual summary for these papers, organized along the topic areas.

JEL Classification: A12, D10, E20, H00, K00 and O11
Keywords: counter-terrorism, economics of terrorism, nature of terrorists, output costs and utility costs.