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Moral Hazard, Discipline, and the Management of Terrorist Organizations

  • Jacob N. Shapiro (a1) and David A. Siegel (a2)

Terrorist groups repeatedly include operatives of varying commitment and often rely on a common set of security-reducing bureaucratic tools to manage these individuals. This is puzzling in that covert organizations are commonly thought to screen their operatives very carefully and pay a particularly heavy price for record keeping. The authors use terrorist memoirs and the internal correspondence of one particularly prominent group to highlight the organizational challenges terrorist groups face and use a game-theoretic model of moral hazard in a finitely sized organization to explain why record keeping and bureaucracy emerge in these groups. The model provides two novel results. First, in small heterogeneous organizations longer institutional memory can enhance organizational efficiency. Second, such organizations will use worse agents in equilibrium under certain conditions. The core logic is that in small organizations the punishment strategies that allow leaders to extract greater effort are credible only when operatives can identify and react to deviations from the leaders' equilibrium strategy. This dynamic creates incentives for record keeping and means that small organizations will periodically use problematic agents in equilibrium as part of a strategy that optimally motivates their best operatives.

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* The authors thank Scott Ashworth, Ethan Bueno de Mesquita, Adam Meirowitz, and Kris Ramsay for many helpful conversations. Our fellow panelists at the 2009 International Studies Association Meeting provided valuable feedback, and our anonymous reviewers improved the article immensely with their thoughtful comments. David Patel suggested the empirical approach we take in the first section. All errors are our own.

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World Politics
  • ISSN: 0043-8871
  • EISSN: 1086-3338
  • URL: /core/journals/world-politics
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