A strategic analysis of the war against transnational terrorism

We study a two stage game in which a transnational terrorist organization interacts with an arbitrary number of countries that may differ in their political or economic power, their military effectiveness, the benefit from cooperating against terrorism and the value they assign to damage. Only a subset of countries that emerges endogenously takes proactive measures to fight the terrorist, while all countries incur defensive expenditures to protect their soil. We characterize analytically the pure strategy subgame perfect equilibrium of the game and show how the equilibrium strategies depend on the key model parameters. We provide an algorithm to find the endogenous set of cooperating countries based on their benefit from cooperation and their political/economic power.