Resident Terrorist Groups, Military Aid, and Moral Hazard: Further Empirical Analysis

This paper revisits moral hazard associated with military aid given to host countries to eliminate their resident terrorist groups. This conflict aid presents recipient countries with perverse incentives because the aid ends once resident groups are removed. In the case of US aid recipients, the longevity of resident terrorist groups rose dramatically. The current article improves on the empirics of the pioneering article by showing that the moral-hazard concerns extend to other major donors – the United Kingdom, France, and Germany. Additionally, military assistance given by a collective of countries to host countries greatly reduces the moral hazard but does not eliminate it. Moreover, policy alignment or affinity between a major donor and the host aid-recipient country does not generally augment resident terrorist groups’ survival, except marginally for the United States, when other sources of military aid are allowed. We introduce other empirical and conceptual innovations for analyzing military-aid-induced moral hazard.