1. 11 Terrorism & Skyjacking With insights from embezzlement 1

2. 22 Outline Terrorism timeline

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5. 5 Black September Terrorists Attack Summer Olympics in Munich, 1972

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7. 7 Bombing of Marine Barracks in Beirut

8. 88 Imad Mugniyah: Newsweek Feb 25, ‘08 H

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10. 10 Terrorism & Recruitment (spread of illness models) One of the dangers of terrorism is recruitment of terrorists abroad Currently Pakistan Remember 9-11, & how many skyjackers were Saudis! Remember Al Qaeda in Iraq and the Sunni-Shia clashes Another current worry is domestic recruitment, US citizens becoming terrorists They have passports; may be hard to detect 10

11. 11 Points About Terrorism Definition: The killing and injuring of innocent civilians for political purposes The perceived threat from foreign terrorists to the USA (at home) is relatively new (since 9/11) Earlier skyjackings in the US were not by terrorists Terrorism has been a threat since World War II in Europe, much of it connected to the Middle East We can learn from comparing the US reaction to skyjacking, and attempts to control it

12. 12 http://www.encyclopedia.com/to pic/terrorism.aspx TERRORISM Although the terrors of war and criminal violence have been known since the dawn of human existence, the concept of terrorism as a form of political violence originated in le terreurof the French Revolution. Initially a word for the brutal excesses of a revolutionary government (some forty thousand persons were guillotined), by the late nineteenth century "terrorism" referred almost exclusively to the antigovernment violence of groups such as the Russian Narodnaya Volya ("Will of the People"). Since then, the designation of particular groups and actions as terrorist has varied with political assumptions and aims.French Revolution To defenders of government, almost any violence by opponents may be defined as terrorism. To opponents, virtually any governmental effort to restrain or repress opposition may be defined as terrorism.

13. 13 Current Terrorism Issues In the News Are terrorists criminals or military combatants? Should terrorists be tried in criminal or military courts?

14. 14 Motives of Terrorist

15. 15 Assaulter’s Income Victim’s Income Total or Social Income Motivation for Violence: Antagonism Assaulters Iso-preference Lines High Low Terrorist’s Tastes

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17. 17 Post 9-11 Attackwhathowwherewhen why? Why don’t our enemies love us? Defense (focus) whathowwherewhen why were we not prepared for the attack?

18. 18 US Wars Domestic (over here) independence1812Civil Foreign (over there) over thereover there Mexico: Halls of Moctezuma Spanish: San Juan Hill & Manila Bay WWI: France WWII: North Africa, Europe, Pacific KoreaVietnam Gulf: Desert Storm Afghanistan and Iraq

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20. 20 Over There There have not been very many politically motivated attacks by foreign terrorists on the domestic USA until 9-11 World Trade Center ( Feb. 26, 1993)

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22. 22 Reward: $2,000,000

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24. 24 Learning from History Skyjacking in the USA first in the USA was 1961 in contrast to skyjackings abroad, at most one skyjacking at home was, maybe, politically motivated by a someone with connections to the Balkans

25. 25 Learning from Economics Thwarting embezzlement inspection, I. E. audit

26. 26 Recent History of US Terrorism Bombings World Trade Center, New York (Feb. 26, 1993) 6 killed, 1000+ injureed Murtaugh Federal Building, Oklahoma City Black Churches April 19, 1995

27. 27 Do You See a pattern? Blackhawk Down Oct. 3-4,1993 Mogadishu, Somalia

28. 28 US Embassy Bombing In Nairobi, August 7, 1998

29. 29 USS Cole attacked by speedboat in Yemen October 12, 2000

30. 30 US Skyjackings Motivated by self-interest (greed/economic person) Rapid increase from nothing, kind of like “the spread of disease models” Know of all instances; no figure of unreported crime i.e. skyjackings Eliminate the expected benefit to the prospective skyjacker by increasing the expected cost US Marshalls on vulnerable flights (30,000 commercial flights/day) Airport inspection

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32. 32 The Legend of D. B. Cooper

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34. 34 US Response to Domestic Skyjackings Armed Federal Marshals on Flights mostly on flights on the Eastern seaboard corridor Congress Passes the US Civil Aviation Security Program in 1973

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41. 41 Terrorism Foreign Skyjackings US Skyjackings Model of US Skyjackings and Bomb Threats Bomb Threats to US Aircraft Inspection 2 Year Lag

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43. 43 Borch Model of Inspection Two actors employee(embezzler) & firm skyjacker & airport security Two sets of values or payoffs to the outcomes No dominant strategy for either actor Need to keep your adversary guessing Embezzler’s expected outcome: break even Firm’s expected outcome: dead-weight cost of inspection

44. 44 Defense Against Embezzlement and Skyjacking I. Options for choice: States of the world Firm Employee Audit No Embezzle Not E  A E  Â Ê  A Ê  Â

45. 45 Defense Against Embezzlement and Skyjacking II. Valuation of the options, i.e. choices A. Payoffs to the employee Audit Embezzle Not 00 No -  G B. Payoffs to the firm Audit Embezzle Not - C - L - C 0 No

46. 46 Circular Contest Best outcome for the employee embezzle and no audit Best outcome for the firm no embezzling and no audit Worst outcome for the employee embezzle and get audited Worst outcome for the firm don’t audit and get embezzled

47. 47 Payoff to the Firm + - Payoff to the Employee +- Ê  Â

48. 48 Payoff to the Firm + - Payoff to the Employee +- Ê  Â Ê  A - C

49. 49 Payoff to the Firm + - Payoff to the Employee +- Ê  Â Ê  A - C E  A - 

50. 50 Payoff to the Firm + - Payoff to the Employee +- Ê  Â Ê  A - C E  A -  - L G E  Â

51. 51 Firm Can Choose A Probability Of Audit Between 0 and 1 If P A = 1, then employee loses -  If P A = 0, then employee gains G How about a probability between 0 and 1 like G/(  + G)

52. 52 Payoff to the Firm + - Payoff to the Employee +- Ê  Â Ê  A - C E  A -  - L G E  Â Probability of Audit = 0 Probability of audit = 1

53. 53 Defense Against Embezzlement and Skyjacking Keep Your Adversary Guessing Keep Your Adversary Guessing Expected Payoff to the employee Audit: P A Embezzle: P E Not: 1- P E 00 No: 1 - P A -  G P E P A (-  ) + P E (1 - P A ) G = 0 = No Incentive P A (-  ) + P A (- G) + G = 0 = P A (  + G) - G P A = G / (  + G)

54. 54 PEPEPEPE 1.0 0 PAPAPAPA 1.0 G/(  + G) Reaction Curve of the Employee to the Firm

55. 55 PEPEPEPE 1.0 0 PAPAPAPA 1.0 G/(  + G) Reaction Curve of the Employee to the Firm

56. 56 PEPEPEPE 1.0 0 PAPAPAPA 1.0 G/(  + G) Reaction Curve of the Employee to the Firm

57. 57 Defense Against Embezzlement and Skyjacking Keep Your Adversary Guessing Keep Your Adversary Guessing Expected Payoff to the employer Audit: P A Embezzle: P E Not: 1- P E -C0 No: 1 - P A -C-L P E P A (-C )+ P E (1 - P A )(-L) +(1- P E ) P A (-C) =V f V f = P E (1-P A )(-L) +P A (-C) If P E =C/L, then V f If P E =C/L, then V f = -C +P A C +P A (-C) = -C And V f does not depend on P A, and firm loses C

58. 58 Reaction Curve of the Firm to the Employee V F = P E P A (-C) +(1-P E )P A (-C) + P E (1-P V F = P E P A (-C) +(1-P E )P A (-C) + P E (1-P A )(-L) 0 1.0 0 1.0 PEPEPEPE PAPAPAPA C/L

59. 59 Reaction Curve of the Firm to the Employee V F = P E P A (-C) +(1-P E )P A (-C) + P E (1-P V F = P E P A (-C) +(1-P E )P A (-C) + P E (1-P A )(-L) 0 1.0 0 1.0 PEPEPEPE PAPAPAPA C/L G/(G+ 

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61. 61 Conclusions The expected value to the crook (embezzler) is zero; he/she breaks even The expected cost to the firm is the cost of inspection, i.e. the dead weight loss; society loses Al Qaeda won by imposing all the extra costs and inconveniences of defense against attack, on us We have come full circle from the second lecture on “The Impact of Crime On Society”. Terrorism. like crime, imposes the dead weight cost of defense on society. Osama may be gone, but we still bear the cost of his legacy! Our only solace is that he is dead.

62. 62 Victim’s Income Thief’s Income $6,000 Income Distribution $12,000 Total or Social Income Line: Thief’s + Victim’s Income $12,000 Income Redistribution $9,000 $3,000 $11,000 $1,000 social cost of defense $11,000

63. 63 THAT’S all FOLKS… 63