Behaviour of Economic Agents, Utility and Security (in times of) Terror – BEcAUSeTerror

The number of terror incidents have been multiplied by 3 in recent years compared to the first decade of years 2000s which raised some interest to study the economic impact of terrorism. A growing body of the literature documents a negative impact of terrorism on financial markets, international trade, foreign direct investment, and tourism.

This proposal has two objectives: It questions, first, the way economic agents (mainly private agents and public authorities) react to terrorism activities, from a microeconomic perspective. Second, it asks how are these interactions among different agents are shaping economic activities across time, space and types of individuals.

In particular, one would like to study how consumers, households, workers and employers modify the way they consume, invest, and commute to work, organize their private and working life or set their production and hiring plans. Further, one would like to evaluate the additional reactions that arise when counter-terrorism measures are being set. Last but not least, under the hypothesis that terror activities could be persistent, the aim is to show how all of these reactions can produce a distortion in the allocation of resources across time, space but also across people. In particular, not only we allow for an interaction of the behaviors of private and public agents across time and space, but we also look at how, in turn, economic and terror activities together can be shaped by those decisions in the long run.

To answer all these questions, we plan to take a multifaceted approach building on the complementary skills of the team members, encompassing conflict economics, microeconomics, trade, behavioral economics, cultural studies and household economics, to provide an accurate theoretical and empirical account of the economic impact of terrorist attacks.

We propose three working packages to repond to our research questions.

Package 1: Private agents’ reactions (Terror, distortions and discriminations). In this package we look at how terrorism influences attitudes towards minorities, how it shapes the behavior of employers and how it affects consumption behaviours using labour market theories and behavioral economics.
Package 2: Public agents reactions (Terror and security measures). In this package we study how terrorism influences voting behaviours towards more security policies. Then we propose to look at how security measures change firm behaviors in the market and the way to cope with them. Security to prevent terror might also be producing externalities on other forms of crimes that we also suggest to study.

Package 3: Terror and overall reallocation of economic activities across time, space and individuals. In earlier packages, we have proposed to look at the changes in the behaviours of private agents with or without additional reactions coming from public authorities. But so far, the reasoning was focused on particular markets in the economy, in partial equilibrium. In this package, we study more general equilibrium effects. The effects of terror on the labour and product markets, supplemented by those of the measures against terror organizations, are expected to create transactions costs and distortions in the economic activities. We thus look at the overall impact in the short and the long run across space and individuals. Here, not only private agents and public authorities are concerned but all types of individuals including the behavior of those which are close in some way or another to terror organizations.