School of Economics

2015 Discussion papers

School of Economics Discussion Paper 15/01

Military Aid, Direct Intervention and

María D.C. García-Alonso, Paul Levine and Ron Smith
University of Kent, University of Surrey and Birkbeck College

January 2015


We present a model of transnational terrorism where two countries, home and foreign, face a terrorist threat based in the foreign country. The home country chooses how much to invest in defending itself or in reducing terrorist resources either indirectly by subsidising the foreign country or by directly by intervening itself. We use backward induction to solve a multiple stage game where the home country first commits to its policy decisions, then the foreign country chooses the effort it expends on reducing terrorist capability and finally, the terrorists decide their effort in attacking in the home or foreign country. In a numerical solution of the calibrated model, direct intervention only arises in equilibrium if foreign and home efforts are not close substitutes in the technology used to reduce the resources of the terrorist group. Greater relative military efficiency in the home country makes intervention more likely.

JEL Classification: D58; D74; H40

Keywords: military conflict; strategic delegation; counterterrorism

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Last Updated: 12/03/2015