Limited resources: the budget constraint

The terrorist group, like the consumer trying to maximise consumption, faces a major hurdle. It does not have unlimited resources. As such, it will not be able to reach the highest indifference curve in some absolute sense. It will only be able to reach the highest indifference curve that is feasible given the amount of resources that the group has. This ‘budget constraint’ can be depicted as a frontier superimposed over the group’s indifference map as shown in Figure 3.2. If the terrorist group allocates all of its resources to terrorism it could engage in TV,. If the group allocates all of its resources to legitimate activity it could engage in LA . By allocating resources to both, the group may engage in some combination of terrorism and legitimate activity that lies somewhere along or within the budget constraint but not beyond it.

The terrorist group’s budget constraint

FIGURE 3.2 The terrorist group’s budget constraint.

The budget constraint is used to represent the core constraint that terrorist groups face in attempting to maximise their political influence. It is because of limited resources that everyone, including terrorist groups, must make choices. Means that are scarce must be allocated to the most pressing ends. The budget constraint might be imagined to expand and contract as the terrorist group confronts dilferent circumstances. For example, it might acquire a state sponsor, which will push its budget constraint outwards and permit it to engage in more of both types of activity. Conversely, the terrorist group may suffer losses in a conflict with a government or rival group, which will pull its budget constraint inwards. Using this model, we can make hypothetical changes in the budget constraint as well as changes to the terrorist group’s preferences that allow us to generate predictions about the patterns of behaviour that will follow certain events.

Together, the indifference map and the budget constraint generate a prediction about the choices that the terrorist group will make. Given the available resources, indifference curves such as u4 and un are not attainable. The group does not have the resources to allocate to the amount of terrorism and legitimate activity required to reach those indifference curves. The group could choose a bundle on iq or и,, such as A or B. Although this is feasible given the group’s resources, the group is not optimising. What we should observe, in theory, is that the terrorist group will seek out bundles that lie on ever higher indifference curves until it centres in on bundle O, the optimum bundle. At bundle О the group is on the highest indifference curve possible given its resources and is allocating its resources perfectly efficiently. This must be accomplished by some search process involving trial and error. Within this theoretical framework, however, this phase of the decision-making process is not explicitly represented.

The rationality that is depicted here is simply the purposeful behaviour of trying to make the best use of scarce resources. The model explains why bundle О and not some other bundle is chosen. Bundle О is the utility maximising bundle given the available resources. Of course, the model does not predict the exact amount or quantity of terrorism and legitimate activity that we should observe.8 Rather, it predicts that the terrorist group will exhibit the pattern of moving towards an optimal bundle and this ‘moving towards’ involves engaging in more and more terrorism and more and more legitimate activity. Because governments and law enforcement agencies can influence the context, it should be possible to affect the choices that the group makes. Most importantly, the terrorist group might be encouraged to reduce its engagement in terrorism if the relative prices can be changed such that terrorism becomes more expensive and legitimate activity becomes cheaper. Harsher penalties and stricter security measures may be put in place while, simultaneously, incentives may be directed towards encouraging more legitimate activity. In Figure 3.3, the budget constraint pivots and the group can now only afford to engage in TA] terrorism. However, it can afford to engage in more legitimate activity LAl. A new optimal bundle, Ov, is identified. The new optimum is characterised by less terrorism and more legitimate activity. Following such measures, therefore, the model predicts a pattern of adjustment away from terrorism. This is one of the main conclusions presented by Frey & Luechinger (2003). Such government policies change both the relative and absolute prices of terrorism and legitimate activity.

Unfortunately there is no way to tell just how long this adjustment will take.The trial and error process that had to be worked through before the terrorist group was able to get to (or near or towards) О in the first place took some amount of time and the adjustment to Ov will also take time and will also be approached by a process of trial and error.4 The neoclassical model, then, really only gives an indication of the nature and direction of any substitution that is expected to take place as a result of the change in the relative prices of terrorism and legitimate activity. It does not give us any further information about the duration of the adjustment process or any precise details about the process itself. The terrorist group might gradually reduce its terrorist activity in response to deterrence efforts. But if enough time passes, the terrorist group may be able to acquire new resources that allow it to expand its terrorist activity even in the face of higher resource requirements.

 
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