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Terrorist Threats And Transitional Dynamics In An Overlapping Generations Model

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  • Jhy-Yuan Shieh
  • Jhy-Hwa Chen
  • Juin-Jen Chang
  • Ching-Chong Lai

Abstract

This paper incorporates the nature of terrorist threats into the Yarri (1965)-Blanchard (1985) model and uses it to discuss the transitional dynamics of consumption in response to an anticipated terrorist attack. It is shown that if the terrorist attack is pre-announced (and hence anticipated) and the public is fully informed, short-term consumption may misadjust from its long-term level. Before the terrorist attacks actually take place, households may be motivated to increase (rather than decrease) their consumption as a temporary response. This result may explain the temporary phenomenon of the increased consumption of certain types of goods in the period following September 11.

Suggested Citation

  • Jhy-Yuan Shieh & Jhy-Hwa Chen & Juin-Jen Chang & Ching-Chong Lai, 2005. "Terrorist Threats And Transitional Dynamics In An Overlapping Generations Model," Defence and Peace Economics, Taylor & Francis Journals, vol. 16(6), pages 415-425.
    • Handle: RePEc:taf:defpea:v:16:y:2005:i:6:p:415-425
    DOI: 10.1080/10242690500115956
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    References listed on IDEAS

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    Cited by:

    1. Tilman Brück & Marie Karaisl & Friedrich Schneider, 2008. "A Survey on the Economics of Security: Final Report for the European Commission, Directorate-General for Justice, Freedom and Security," DIW Berlin: Politikberatung kompakt, DIW Berlin, German Institute for Economic Research, volume 41, number pbk41.
    2. Marek Loužek, 2009. "Ekonomie bezpečnosti - jsou teroristé racionální? [Economics of security - are terrorists rational?]," Politická ekonomie, Prague University of Economics and Business, vol. 2009(2), pages 177-193.

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