1. Rules vs. Discretion

2. Terrorism “game” two actors: government and (potential) terrorist
government values its citizen’s lives at at least $100,000 each
for $10,000,000, the terrorist is willing to risk his life and others. he will not die alone
will the terrorist take 100 hostages? or not?

3. terrorist government = terrorist payoff = government payoff
don’t take hostages
= government payoff
terrorist
pay the ransom
take hostages
this government has “discretion”.
ie, has a choice to make
government
try killing
the terrorist

4. terrorist government = terrorist payoff = government payoff
don’t take hostages
= government payoff
terrorist
pay the ransom
take hostages
government
try killing
the terrorist

5. terrorist government = terrorist payoff = government payoff
don’t take hostages
= government payoff
terrorist
pay the ransom
take hostages
government

6. Discretionary Outcome = “Equilibrium of the Discretion Game”
terrorist
pay the ransom
take hostages
government

7. government avoids terrorism and
don’t take hostages
government avoids terrorism and
is bettor off when unable, or unwilling,
to make the “right” choice!
terrorist
take hostages
this government has no “discretion”. It cannot, or will not, take action based on value of life calculation
government
try killing
the terrorist

8. No Discretion Outcome = “Equilibrium of the No Discretion Game”
don’t take hostages
terrorist
No Discretion Outcome =
“Equilibrium of the No Discretion Game”

9. Examples capital/wealth levy amnesties for taxes, draft, immigration
retroactive income tax
patents; restrict pharmaceuticals prices
flood victims
debt repudiation (eg., inflation)
punishing criminals
rent control