Self-managing terror: Resolving agency problems with diverse teams

I examine a principal-agents model of subversion with externalities to illustrate a novel mechanism for why diversity can be valuable to organizations: teams of diverse agents can self-manage and discourage their teammates from subversion through compromise. In contrast to standard “ally-principle” type results, I find that integrating more extreme agents can result in better-behaved teams. The model describes, among other cases, radical Islamist terror groups that use foreign fighters. Because foreign and domestic fighters have conflicting preferences over how they want to subvert, integrated teams may self-manage with efficiency gains for the principal. This model explains variation in agency problems and foreign fighter usage in major insurgent groups, including al Qaeda in Iraq, the Haqqani Network, and the Islamic State. Additionally, the theory here can explain management practices in a wide range of alternate settings, for example, where a busy or constrained principal cannot easily implement auditing or incentive contracts.