Since the outbreak of the Intifada in September 2000, the Israeli government has extensively employed a policy of assassinating members of Palestinian terrorist organizations. Theoretically, the net effect of an assassination on future terrorism is indeterminate because it embodies two conflicting effects: the assassination of a terrorist hurts his organization's capabilities, but may increase the motivation for future attacks. Our indirect, empirical evaluation of the effectiveness of assassinations for Isreali counterterrorism is based on Israeli stock market reactions to news of such operations. We rely on the fact that terrorism has had significant adverse effects on the Israeli economy and claim that the stock market should react positively to news about effective counterterrorism measures but negatively to news about counterproductive ones. We find that the market does not react to assassinations of low-ranked members of Palestinian terrorist organizations. The market does react strongly, however, to the assassinations of senior leaders of terrorist organizations: it declines following assassinations targeting senior political leaders but rises following assassinations of senior military leaders. To the extent that these reactions reflect expectations regarding future levels of terrorism they imply that the market perceives the first type of assassinations as counterproductive, but the second as an effective measure in combating terrorism.
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Volume (Year): 20 (2006) Issue (Month): 2 (Spring) Pages: 193-206 Download reference. The following formats are available: HTML
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