1. Llad Phillips 1 Terrorism, Skyjacking & Embezzlement Foreign and Domestic

2. Llad Phillips 2 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

3. Llad Phillips 3 Post 9-11  Attack –what –how –where –when –why? Why don’t our enemies love us?  Defense (focus) –what –how –where –when –why were we not prepared for the attack?

4. Llad Phillips 4 US Wars  Domestic (over here) –independence –1812 –Civil  Foreign (over there) over thereover there –Mexico: Halls of Moctezuma –Spanish: San Juan Hill & Manila Bay –WWI: France –WWII: North Africa, Europe, Pacific –Korea –Vietnam –Gulf: Desert Storm –Afghanistan and Iraq

5. Llad Phillips 5 Why were we not Prepared? Theme #1: “Over there… “ “ Chorus Over there, over there, Send the word, send the word over there - That the Yanks are coming, The Yanks are coming, The drums rum-tumming Ev'rywhere. So prepare, say a pray'r, Send the word, send the word to beware. We'll be over, we're coming over, And we won't come back till it's over Over there.

6. Llad Phillips 6 America’s Best Known World War I Song  “Over there, over there, send the word, send the word over there, that the yanks are coming, ….

7. Llad Phillips 7 Terrorism in the USA  Home grown  Foreign imports  Remedies

8. Llad Phillips 8 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)

9. Llad Phillips 9 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

10. Llad Phillips 10 Learning from Economics  Thwarting embezzlement –inspection, I. E. audit

11. Llad Phillips 11 Recent History of US Terrorism  Bombings –World Trade Center, New York  6 killed, 1000+ injureed –Murtaugh Federal Building, Oklahoma City –Black Churches  Skyjackings

12. Llad Phillips 12 WTC 1993 Blackhawk Down 1993 Saudi Arabia 1996 Africa 1998

13. Llad Phillips 13 USS Cole 2000 9/11

15. Reward: $2,000,000

16. Llad Phillips 16 http://news.bbc.co.uk/onthisday/hi/dates/stories/february/26/newsid_2516000/2516469.stm

17. Llad Phillips 17 Facts:MyLecture # 7 On CorrectionsBureaucracy “corrected”

18. Llad Phillips 18 Total International Terrorist Attacks http://www.state.gov Office of the Coordinator for Counter-Terrorism Patterns of Global Terrorism

19. Llad Phillips 19 Note: The Small # of Attacks in NorthAmerica

20. Llad Phillips 20 Shock value Of 9/11 Few attacks In North America, but ManyCasualties

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24. 24 Skyjackings  The first skyjacking was a Peruvian carrier in February 1931  The first skyjacking of a US carrier was a National Airlines flight destined for Key West Florida on May 1, 1961

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26. 26 The Legend of D. B. Cooper

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28. 28 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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35. 35 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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38. 38 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

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40. 40 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

41. Llad Phillips 41 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

42. Llad Phillips 42 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

43. Llad Phillips 43 Payoff to the Firm + - Payoff to the Employee +- Ê  Â

44. Llad Phillips 44 Payoff to the Firm + - Payoff to the Employee +- Ê  Â Ê  A - C

45. Llad Phillips 45 Payoff to the Firm + - Payoff to the Employee +- Ê  Â Ê  A - C E  A - 

46. Llad Phillips 46 Payoff to the Firm + - Payoff to the Employee +- Ê  Â Ê  A - C E  A -  - L G E  Â

47. Llad Phillips 47 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

48. Llad Phillips 48 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)

49. Llad Phillips 49 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

50. Llad Phillips 50 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)

51. Llad Phillips 51 PEPEPEPE 1.0 0 PAPAPAPA 1.0 G/(  + G) Reaction Curve of the Employee to the Firm

52. Llad Phillips 52 PEPEPEPE 1.0 0 PAPAPAPA 1.0 G/(  + G) Reaction Curve of the Employee to the Firm

53. Llad Phillips 53 PEPEPEPE 1.0 0 PAPAPAPA 1.0 G/(  + G) Reaction Curve of the Employee to the Firm

54. Llad Phillips 54 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

55. Llad Phillips 55 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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57. 57 Post 9-11  Attack –what –how –where –when –why? Why don’t our enemies love us?  Defense (focus) –what –how –where –when –why were we not prepared for the attack?