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The Economic Analysis of Conflict

Understanding the political economy of terrorism and insurgency has immediate implications for development in the world’s trouble spots.

A decade of rigorous empirical research by IGCC Research Director Eli Berman at UC San Diego, Empirical Studies of Conflict (ESOC) partners at Princeton and Stanford Universities, and others reveals a simple, key finding: a critical factor in successful rebel insurgencies is preventing information flow from affected noncombatants to government forces about the location of IEDs (improvised explosive devices), ambushes, and other rebel activities. That information-centric approach has testable implications, as well as policy implications for reducing levels of violence in insurgency—by making tips easier for civilians to provide and by providing governance services that induce civilians to favor government over rebels. Those insights provide opportunities to create space for political solutions.

Applying the tools of economic analysis to terrorism yields some surprising conclusions, many of which are policy-relevant. Terrorists make rational choices. Religious radicals are the most lethal of terrorists, not because of their theology, but because they form defection-robust organizations. Social service provision enhances that robustness to defection, suggesting that governments can fight terrorism by competing in social service provision.