An Economic Theory of 'Destabilization War'

While Islamic State is the most present example, it is a fact that in many places around the globe, throughout history initially small groups have tried to challenge and destabilize or even overthrow governments by means of terrorist and guerrilla strategies. Therefore, we answer two questions. Why does a small group of insurgents believe it can overthrow the government by turning violent, even if the government is clearly superior? And how does a conflict develop into terrorism, a guerilla war, or a major conventional civil war, or is resolved peacefully? We develop a formal model for rebels and government and derive optimal choices. Further, we focus on three elements as important ingredients of a "destabilization war". All three of these - large random events, time preference (which we relate to ideology), and choice of duration of fight - are rarely considered in formal conflict theory. We can answer the above two questions using game theory analysis. First, insurgents rise up because they hope to destabilize through permanent challenging attacks. In this context, large randomness is an important ally of rebels. While each individual attack may have a low impact, at some point a large random event could lead to success. Hence, the duration of activities is a constitutive element of this kind of armed conflict. Patience (low time preference), which may reflect rebels' degree of ideological motivation, is crucial. Second, the mode of warfare or the conflict resolutions that develop are generally path-dependent and conditioned on the full set of options (including compromise). Various conditions (level of funding, ease of recruitment, access to weapons) influence different modes of warfare or a peaceful compromise in a complex way.