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Balancing Terrorism and Natural Disasters—Defensive Strategy with Endogenous Attacker Effort

Department of Industrial and Systems Engineering, University of Wisconsin–Madison, Madison, Wisconsin 53706
Department of Industrial and Systems Engineering, University of Wisconsin–Madison, Madison, Wisconsin 53706
jzhuang{at}wisc.edu
bier{at}engr.wisc.edu

In this paper, we apply game theory to identify equilibrium strategies for both attacker and defender in a fully endogenous model of resource allocation for countering terrorism and natural disasters. The key features of our model include balancing protection from terrorism and natural disasters, and describing the attacker choice by a continuous level of effort rather than a discrete choice (i.e., attack or not). Interestingly, in a sequential game, increased defensive investment can lead an attacker to either increase his level of effort (to help compensate for the reduced probability of damage from an attack), or decrease his level of effort (because attacking has become less profitable). This can either reduce or increase the effectiveness of investments in protection from intentional attack, and can therefore affect the relative desirability of investing in protection from natural disasters.

Subject classifications: decision analysis; risk; games/group decisions; noncooperative; utility/preference; applications.
History: Received January 2006; revision received September 2006; accepted September 2006.

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