This paper investigates the interplay of trade and terrorism externalities under free trade between a developed nation … targets both nations and reduces its attacks in response to a nation's defensive counterterrorism efforts, while transferring … some of its attacks abroad. Terms-of-trade considerations lead the developed nation to raise its counterterrorism level …

on a two-period signaling game. The terrorists, taking into account the government's counter-terrorism response to first … choice it observes in period 1 and adjusts its second period counter-terrorism spending according to the perceived threat of … optimal for a government to spend more on second period counter-terrorism measures if it is not attacked than if it were …