ON THE POLITICAL ECONOMY OF BINATIONAL COUNTER-TERRORISM

I. Introduction

This essay applies some of the simplest techniques of game theory to explore the economic incentives facing foreign nations sheltering terrorists, and the predictable responses of those nations in a mixed-motive non-zero sum game in which the terrorists are dummy players.1 The principal players in the game are the nation that is a target of international terrorist activities and the nation that is a host (willing or unwilling) for the headquarters of the international terrorists.

The idea for this essay came to me from a recent news story published on the front page of The New York Times. Here is the first paragraph of that story:2

"BUENOS AIRES, July 21 [2002] -The Iranian government organized and carried out the bombing of a Jewish community center here eight years ago that killed 85 people and then paid Argentina's president at the time, Carlos Saul Menem, $10 million to cover it up, a witness in the case said in sealed testimony."

I take no position as to whether the reported allegations are true. If the report is accurate, it constitutes an especially obvious example of state-sponsored terrorism. Whether true or not, the report exemplifies a profoundly problematic aspect of the so-called "war" on international terrorism; namely the complicity of governments (or government agents acting in their official capacity) that accommodate international terrorists operating from within their sovereign borders.

Additional evidence of the complicity of host nations is found in a Report released on 16 October 2002 by The Council on Foreign Relations. In one of its starkest conclusions the Report stated the following:

"It is worth stating clearly and unambiguously, if only because official U.S. government spokesmen have not: for years, individuals and charities based in Saudi Arabia have been the most important source of funds for Al Qaeda, and for years Saudi officials have turned a blind eye to this problem."3

The allegations in the Report published by the Council are consistent with the allegations in a lawsuit brought in a U.S. Federal Court. As reported in the New York Times* on 25 October 2002, the lawsuit alleged that the Saudi Ambassador to Great Britain (Prince Turki bin Faisal) negotiated a deal with Al Qaeda in 1998 in which the terror network agreed to end its efforts to subvert the Saudi monarchy in exchange for a Saudi promise not to comply with demands for the extradition of Al Qaeda leaders.

The war on terrorism has been simmering at least since the year 1972 when Israeli athletes were murdered at Munich.5 But it was not until nearly 30 years later that the events of 11 September 2001 demonstrated to the government and the people of the United States that international terrorists had the technical capacity and the will to attack iconic institutions on U.S. soil. It is ironic that only a few months before 11 September one can find an expert expressing his opinion that the threat of terrorism had shrunk in recent years.6

The infrequent attacks within U.S. borders by foreign-based terrorists might be explained by a variety of factors: perhaps the U.S. was better able than most other nations to detect and avert any plan of attack within its boundaries, or perhaps terrorist groups believed, whether correctly or mistakenly, that a large scale attack in the U.S. was technically infeasible or too risky.

A third possible explanation of the rarity of attacks within U.S. borders by foreign-based terrorists is that they may have recognized that a condition of their organizational existence within a sheltering country (such as Syria, Iraq or Iran) was to avoid bringing down the wrath of the U.S. on their hosts.

To the extent that this is (was) a correct characterization of the strategic thinking of foreign-based terrorists, it suggests that the U.S. policy of prosecuting a "war on terrorism" must contend with the behavior of nations that are hosts to terrorist organizations as well as the terrorists themselves. An example of the problem of transmitting intentions to host countries is that of communicating, persuasively, an intended pattern of retaliation for acts that the U.S. considers absolutely intolerable.7 The paper by Sandler and Enders (2002,2) observes that transnational terrorist incidents are what they call transboundary externalities, insofar as actions conducted by terrorists or authorities in one country may impose uncompensated costs or benefits on people or property of another country. This paper applies game theory to analyze how governments react to terrorist-induced changes in their policies

II. Research on The Application of Game Theory to Counterterrorism

In the past decade the published literature applying game theory to terrorism has proliferated. A search on the internet turned up citations to dozens of articles purporting to apply the techniques of game theory to study international terrorism. A few of the most recent representative publications include Major (2002), Bueno de Mesquita (2004), Sandler and Enders (2002), Keet (2003), Sandler and Arce M. (2003) and Arce M. and Sandler (2005). Nearly all of the published literature I reviewed has focused attention on the design and analysis of games played out between terrorists and their potential targets. Those papers are not germane to the analysis in this essay. Significant exceptions are the two papers by Sandler and Arce M cited above. Those authors design games to reflect counter-terrorist policies dichotomized between what they call proactive and deterrence. Arce M. and Sandler (2005, 184) explain:

"Such proactive policies may include destroying terrorist training camps, retaliating against a state sponsor, infiltrating terrorists groups, gathering intelligence and freezing assets. Preemption is the quintessential proactive policy in which terrorists and their assets are attacked to curb subsequent terrorist campaigns"

The alternative policies are defensive. They explain:

"... defensive policies are intended to deter an attack by either making success more difficult or by increasing the likely negative consequences to the perpetrator."

The games constructed and analyzed by Arce M. and Sandler contemplate the games played by potential target nations against each other. The players are the United States and the European Union. The terrorists are dummy players in those games. Their articles establish the prevalence of deterrence over preemption when targeted governments can choose between either policies or employ both. They find a similar proclivity to favor defensive counter-terrorist measures over proactive policies.

Arce M. and Sandler comment: "Proactive policies tend to provide purely public benefits to all potential targets and are usually undersupplied." That observation constitutes the germination of the ideas in this paper.

This paper will extend the work of Arce M. and Sandler to an issue which they include in their taxonomy, but which they do not explore in any detail. I propose a game in which only one of the players is a potential target; the other player is a nation that is the host (willing or unwilling) to international terrorists. This is the strategy identified by Arce M. and Sandler among their so-called proactive policies. Here is what those authors have written (2002, 185):

"To decide the best strategy, a government must anticipate not only the actions of terrorists but also those of other governments that might work at cross purposes or take advantage of another government's action. In today's world of networked terrorists where the threat is global, accounting for these reactions of other governments is essential to the formulation of effective counterterrorist policies."

Those authors mention the policy of retaliation against a state sponsor, but I have found no published research that explores the implications of such a policy. The objective of this paper is to examine the question of whether, and under what circumstances, a proactive policy of retaliating against a state sponsor of terrorism will constitute an effective counter-terrorist strategy. It is hoped that this research will contribute to filling a gap in the literature in that area.

III. A Synoptic Lexicon of International Terrorism

There seems to be no well established consensus on the definition of international terrorism; one man's "terrorist" is another man's "freedom fighter."8 Even agencies of the U.S. government do not subscribe to uniform definitions.9 For purposes of the theory explored in this paper I adopt the following definitions:10

1. The term "terrorism" means premeditated, politically motivated violence perpetrated against noncombatant targets by subnational groups or clandestine agents, usually intended to influence an audience.

2. The term "international terrorism" means terrorism involving citizens or the territory of more than one country.

These definitions should not be considered as precise. They are mainly suggestive because terrorism today has become more complex and amorphous. However, the distinction between domestic and international terrorist threats is meaningful because the dichotomy has important practical implications for the scope of a nation's unilateral and multilateral counter-terrorist policies.

A question bearing on the dimensions of international terrorism goes to the heart of this paper: which are the nations that overtly or covertly offer aid and support to international terrorist organizations? Pursuant to an Anti-Terrorism Act enacted into law in 1996, the secretary of Commerce and the secretary of State prepared a list identifying countries that provide repeated support for international terrorism." The list includes Afghanistan, Cuba, Iran, Iraq, North Korea, Libya, Sudan and Syria.12

Moreover, it is worth noting that the need to control international terrorist attacks is not exclusively a problem of the U.S. In the perennial conflict between India and Pakistan over Kashmir, each nation routinely accuses the other of hosting terrorists that cross the border to carry out attacks.

IV. A Taxonomy of Counter-Terrorist Strategies

The policies that can be enforced by any nation to defend itself against terrorist attacks within its borders are roughly of two kinds.

1. Prophylactic measures; these measures are intended to avert an attack by international terrorists that is in its incipiency. Prophylactic measures are nearly all unilateral. Examples are the use of enhanced technology to detect weaponry and explosives at airports, increased vigilance by customs personnel, arming of pilots, etc. The defining characteristic of prophylactic measures is that they are nation-specific; i.e. they benefit only the nation that applies them.

2. Punitive measures; these measures are intended to deter an attack by threatening to inflict what the threatener believes to be unacceptable costs on the attacker subsequent to an attack. An exemplar of the punitive policy is the following:13

"Where a regime has close relations with the terrorists, it is reasonable to treat the host nation as an ally of [e.g. al-Qaeda] and an enemy of the United States. The United States must be prepared to wage war against such states to destroy terrorist groups themselves, to prevent their reconstruction by eliminating the regimes that support them, and to deter other nation-states from supporting terrorism."

This statement exemplifies in its starkest form the theory of retaliation as a strategy in a game where there are at least three composite players: (1) one player is the nation that has been the victim of an attack by international terrorists, (2) a second player is the terrorist group that launched the attack, as well as other terrorist groups of similar inclination and (3) the third player is the nation that is the host to the international terrorist group(s) that launched the attack.

The defining characteristic of punitive measures, such as retaliation, is that they generate global benefits as well as nation-specific benefits, e.g. Israel and nations sympathetic to Israel derive benefits from the U.S. retaliatory attack against Al Qaeda in Afghanistan and in Iraq.

The game paradigm that is the centerpiece of this paper focuses exclusively on the counter-terrorist policy of retaliation against international terrorist groups, wherever they may be found. From an economist's point of view the strategy of retaliation is an interesting way of analyzing counter-terrorism because the strategy has the characteristics of a public good. This addresses the point expressed by Arce M. and Sandier in section II of this paper.

V. The Political Economy of the Two Person Non-Zero Sum Game of CounterTerrorist Strategies Without Coalitions

1. The costs to host nations of their tolerance (or support) of international terrorist groups

Considered from an economic perspective, the activities of international terrorist groups impose costs on all nations, including their hosts. The direct costs borne by the nations who are victims and potential victims of attacks are too obvious to require description. But putative host nations also bear costs associated with the activities of terrorist groups known to be sheltered within their borders.

One manifestation of the costs borne by host nations is the unilateral economic sanctions imposed by the United States. Under a number of different laws,14 the placement of a country on the terrorism-host list triggers a wide range of U.S. economic sanctions including:

1. A ban on direct U.S. foreign aid, including Export-Import guarantees.

2. A ban on sales of items on the U.S. Munitions Control List.

3. A requirement that the United States vote against lending to that country by international institutions.

4. Enforcement of strict licensing requirements for sales to that country, which generally prohibit exports of items that can have military applications, such as advanced sensing, computation, or transportation equipment.

5. In addition to the direct economic costs imposed by the U.S., host countries may bear the costs of a "secondary boycott"; i.e. penalties are imposed on countries that help or arm countries that are identified by the U.S. as hosts of terrorist groups." Policies (1) through (4) are unilateral actions taken by the U.S. to impose costs on host countries, whereas the secondary boycott effected by the U.S. is multilateral.

6. Even if a host country is able to conceal the fact that it shelters international terrorist groups, the host may still bear significant costs unrelated to U.S. policies. The incumbent political regimes in many host countries may consider the terrorist groups they harbor to be potential threats to the internal political stability of the country. To the extent that this threat is perceived to be significant, it constitutes a real cost to the host of continuing to shelter terrorists.16

2. A counter-terrorist policy of retaliating against international terrorist groups generates global benefits.

Suppression of the general level of international terrorism, however it may be effected, has the characteristic of a public good. That is to say, a reduction in the general level of international terrorism confers benefits on all nations.17 However, it is not true that every counter-terrorist policy has the effect of reducing the general level of international terrorism. Compare the effects of a retaliatory strategy with those of a prophylactic strategy.

The policy of retaliation has economic implications that differ from those of prophylactic policies; if one nation takes unilateral precautions to avert terrorist attacks within its borders, those precautions do not reduce the risk of terrorist attacks in other nations. As a practical matter, prophylactic measures adopted by a nation may increase the likelihood of a terrorist attack elsewhere because such measures increase the relative costs to the terrorists of carrying out a successful attack.

If a nation that is a victim of international terrorism carries out retaliatory measures in the nation where the terrorists are based the retaliator will derive benefits and other nations that are potential victims will derive benefits from the unilateral action of the retaliating nation because the threat to all nations will be attenuated.

The costs of terrorism that are borne by the host nations offer incentives for them to enforce domestic policies intended to nullify international terrorist groups within their borders. If a host nation punishes (i.e. retaliates against) terrorists for their terrorist activities abroad, all potential victims as well as the host nation will derive economic benefits from the unilateral activity of the host.18

3. The solution to the two party non-zero sum game in the absence of coalitions.

At the threshold of the game paradigm it is useful to explore the consequences of two kinds of counter-terrorist strategies, namely those that generate nation-specific benefits and those that generate global benefits. Consider only two nations; a Victim of international terrorists and the nation that is the Host of those terrorists.

If the only kinds of benefits from a retaliatory strategy were global benefits, the economic logic of collective action would preclude a coordinated bilateral retaliatory strategy. Each nation will recognize that if the other nation retaliates the costs imposed on all nations of terrorist activities will be diminished, but the retaliator will derive no specific benefits. The consequence is that each of the two nations will have an incentive to free-ride on the retaliatory strategy of the other. Moreover, each nation will recognize that it will incur avoidable costs by retaliating alone. Thus, the bilateral "solution" strategies resulting from rational self-interest by each party will be for both nations to refrain from retaliating. In terms of the effectiveness of multinational counter-terrorism, this is the worst possible outcome." In order to preclude this solution I assume that a retaliatory strategy generates nation-specific benefits to the retaliator.

Suppose we consider a baseline solution to the counter-terrorist strategy in a 2-party game in the absence of coalitions. The defining characteristics of the baseline game consist of six assumptions. They were selected to reflect their verisimilitude with the economic institutions and the informationgathering capacities of both victim and host nations. They are enumerated below:

1. An international terrorist group has carried out an attack. The nation that has been attacked will be referred to as the victim.

2. The identity of the host nation is known to the victim.

3. The government of the host nation does not expect that its citizens will derive any benefits if the host continues to shelter terrorists within its borders. This means that coalitions between the terrorists and the government of the host nation are expressly precluded in the baseline game.

4. The costs to the host nation of taking unilateral action to retaliate against the terrorists exceed the costs of continuing to tolerate them.20

5. The costs to the host nation of jointly retaliating21 are exceeded by the costs to that nation's citizens of permitting the terrorists to continue to operate from within its borders.22

6. Each nation knows the ordering of the payoffs to itself as well as the ordering of the payoffs to the other nation.

Each player must choose between two strategies: retaliate militarily or do not retaliate. Figure 1 displays the payoff matrix characterizing the game.

The entry in the lower left of each cell represents the payoff to the host and the entry in the upper right represents the payoff to the victim. The payoffs are assigned separately for each player and there is no assumption of international comparability. The numerical values appearing in the matrix represent percentages of payoffs to each player, where the baseline strategy of retaliation is defined as 100% for each player. The specific numerical values are arbitrary; it is only the relative ordering for each player that is relevant.

The payoff configuration in the baseline game suggests that both nations will retaliate. This result is mainly a consequence of the supposition that a retaliatory strategy generates nation-specific benefits to each retaliator. The victim demonstrates its willingness and its ability to inflict heavy costs on international terrorists thereby accomplishing two beneficial objectives: disabling those terrorists and deterring other like minded groups from attacking the victim.23 The latter is a nation-specific benefit of retaliation. The nation-specific benefits realized by a retaliating host nation are manifested as an abatement of the costs enumerated in section IV (A).

In this scenario the importance of establishing an explicit coalition to effect a bilateral strategy is lessened. In Figure 1 the Victim nation recognizes that the payoff to itself of adopting a strategy of retaliation is maximized independent of whichever strategy may be selected by the host nation. Thus, the victim nation will always choose to retaliate.24

Notice also in Figure 1 that the host nation faces a conditional strategic choice; it is in the self interest of the host nation to retaliate if and only if the victim nation chooses a strategy of retaliation. The worst-case scenario for the host nation is if it does not retaliate but the victim nation does. However, assumption 6 above implies that the government of the host nation knows that the victim nation will always retaliate. Therefore the host will realize its own maximum payoff by retaliating. In this scenario the so-called free-rider problem does not constitute an obstacle to bilateral coordination of retaliatory strategies. The stated policy of the victim nation is that it will never forbear from retaliating and the host's knowledge of that policy makes a strategy of forbearance by the host less attractive than a strategy of its own retaliation.

In summary, the solution in the baseline game is for each nation to select its optimal strategy and the joint effect of those strategies maximizes the effectiveness of global counter-terrorism.

VI. The Political Economy of the Solution to Two Person Non-Zero Sum Game of Counter-Terrorist Strategies Conditioned by Coalitions

In this section of the essay I modify the parameters of the game to allow for the possibility of contractual relations between players. Essentially, I am abrogating assumption 3.1 adopt some of the terminology used by Shubik; namely strategic dummies and coalitions. In Shubik's words:

"A strategic dummy is [a player] who is so constricted by the rules [of the game] that he has no choice in his actions. He may nevertheless have a stake in the outcome, and this may have an effect on the solution . . . "25

The rules of the 2-person game configured in Section IV are modified to incorporate an international terrorist group as a strategic dummy in the game. The terrorist group is not an active participant in the 2-person game because its strategy is fixed; I assume that the terrorist group intends to carry out its attacks abroad while operating from within the borders of the host nation. It does, however, have the power to influence the strategic choice of the host nation. It accomplishes this by forming a coalition with the host.26

1. The formation of a coalition

Suppose the government of the host nation agrees to a contract with the terrorist group. This does not mean a formal agreement drawn up between the parties legally enforceable in a court of competent jurisdiction. It is a coalition in the form of a quid pro quo: The host nation agrees to mitigate (or suspend) its counter-terrorist activities directed at the international terrorists residing within its borders and those terrorists agree to transfer resources (or something of value) to the host nation, or to its venal officials. In effect, the host extracts resources or some other valuable consideration from the terrorists in exchange for the protection it sells to them. The value received by the host may be no more than a cessation of the domestic minatory activities of the terrorists.

This can no longer be considered a fanciful scenario. The apparent willingness of some nations to sponsor terrorists has helped transform terrorism from an insular domestic phenomenon into an international threat. Recently published documents from KGB archives, for example, provide evidence that the Soviets trained and supported groups that carried out terrorist attacks as part of a broader strategy to keep the U.S. off balance during the cold war.27

International terrorism has long been a source of friction between the U.S. and Europe. During die 1970s and the 1980s, for example, it was not unusual for European governments to cut secret deals with terrorists. In exchange for terrorists' agreement not to strike within these countries' borders or target their citizens, European authorities often turned a blind eye to activities that would otherwise have provoked arrest and imprisonment.28 A recent book29 asserts that terrorists have "consistently benefited" from their acts because feckless European governments have been ready-if not eager-to capitulate to threats.

If a host nation wants to avoid economic sanctions imposed by the U.S. (or others) it can continue to accommodate international terrorists by behaving duplicitously or by asserting its own helplessness. Some nations may profess that they lack the competence to enforce an effective anti-terrorist policy within their own borders. Other nations that do not really believe in the goal of nullifying a specific terrorist group will make efforts that are too half-hearted to be effective but real enough to be distinguishable from sanctionable incompetence. There may be little the U.S. will be able to do if a nation that harbors international terrorists plausibly claims that it cannot find them.30

Christopher Hewitt, who has extensively studied the effects of government anti-terrorist policies in five nations, notes that despite extensive "reforms" made by two of those governments, i.e. Spain and Northern Ireland, international terrorism continues in those nations.31

An especially dramatic instance of the dissolution of coalition between international terrorists and their host country is the explosion in Bali, Indonesia in October of 2002, apparently engineered by a terrorist group calling itself Jemaah Islamiyah. For nearly a year prior to the explosion Indonesia dismissed claims that the organization was a threat, or even that it existed. Before the explosion, which killed more than 180 people, the Indonesian authorities offered a safe haven to the terrorist organization while it conducted its operations abroad. In return, the organization refrained from carrying out terrorist activities within Indonesia. In October 2002 the coalition fractured. In the aftermath of the bombing the Indonesian government, under pressure from the United States to act decisively against the terrorists that it was harboring, took the step on 16 October 2002 toward declaring that group to be a terrorist organization.32

The point of these observations is that the set of strategic choices available to the host nation is enlarged because it includes an opportunity to form a coalition with the terrorists operating from within its borders.

2. The payoff matrix in the presence of a coalition between the host and the terrorists.

In Figure 2 the payoff matrix has been expanded to include a third strategic choice for the host nation-namely the choice of forming a coalition with the international terrorists operating from within its borders.

The third strategy displayed in the matrix offers an opportunity for the host nation to enrich itself by selling protection to the terrorists it hosts. If the victim nation chooses a strategy of retaliation, the host nation can provide a protected sanctuary to the terrorists in exchange for valuable consideration. If the valuable consideration transferred from the terrorists to the host exceeds the aggregate cost to the host of continuing to tolerate the terrorists, the marginal payoff to the host will be larger man if the host cooperated with the victim to retaliate.

If the host does form a coalition with the terrorists, its protection mitigates the effectiveness the victim's retaliation. In the game scenario without a coalition the victim nation will have an incentive to retaliate even if the host does not. The existence of a "free-rider" does not deter the victim from allocating resources to effect a reduction in terrorist activity.

Suppose, however, that the existence of a coalition between the host and the terrorist group is known to the victim nation. In that case the incentive for the Victim to retaliate will be sharply reduced because of the perception that those retaliatory efforts may be otiose.

The payoffs to the two players if the victim retaliates and the host forms a coalition are shown to be larger for the host and smaller for the victim than any of the payoffs in the game played without a coalitional strategy. Notice, not only does the victim nation sustain a loss effected by a coalition, the global community also sustained a loss because of the public good character of the lessening of international terrorism. Any action that reduces the general threat of international terrorism adds to the public good. Conversely, any action that mitigates the reduction of terrorist activity lessens the public good. Thus the coalition formed by the host and the terrorists detrimentally affects all nations, not only the victim.

As displayed in Figure 2, the payoff configuration in the expanded matrix will induce the host nation to elect a strategy of forming a coalition with the terrorists independent of whatever strategy the victim may elect. If the information flow to the victim nation reveals the relative incentives presented to the host, the victim nation will recognize that there is nothing to be gained by retaliating and its own interest will be better served by forbearance. Thus, a rational victim nation will not retaliate. In this scenario the coalition has the same effect as if the host nation had sold a "license" to the terrorist group, permitting it to conduct its activities from a safe haven.

The most pernicious effect of the coalitional strategy can be observed by comparing the solution to the non-coalition game with the solution to the coalition game: The addition to the game of a strategy of coalition alters the solution of the game from the best of all possible outcomes to the worst of all possible outcomes from the point of view of inhibiting multinational counter-terrorism.

VII. Concluding Remarks

A main theme of this paper has been to argue that the so-called "war on international terrorism" announced by the President of the United States in the aftermath of September 11th cannot be successfully prosecuted unless the United States and its allies can subvert the coalitions between the terrorists and their hosts. That proposition may be obvious to strategic thinkers in the Pentagon and in agencies charged with domestic security, but I suggest that it is only now beginning to emerge to the consciousness of members of the Congress or the public.33

An application of a simplistic free-rider theory implies there will be insufficient retaliatory resources allocated to suppressing multinational terrorism because it has the characteristics of a public good. If every potential victim derives benefits from the retaliation by any one of them, then every potential victim has an incentive to free-ride on the retaliatory actions of another. The consequence might be that no nation takes retaliatoryaction.34

To the extent that there are coalitions between multinational terrorists and their host nations, the nation-specific benefits that victim nations can expect from a policy of retaliation are attenuated. The obvious consequence will be to lessen the incentive for victim nations to retaliate. A nation that is known to be a host can realize benefits from retaliating (i.e. suspension of economic sanctions.) But it may realize larger benefits from licensing the terrorists to continue to operate from a safe haven. If the terrorist organization(s) can transfer to the host resources whose aggregate value exceeds the costs of the economic sanctions imposed by the U.S. and others, the host will earn profits by selling protection.

When dealing with an entity that is as intrinsically lawless as a multinational terrorist organization a host nation cannot be assured that its "contract" with the terrorists will not be breached. Like any other rational actor, a terrorist group will uphold an implicit agreement when it is in its interest to do so, and like any other agreement (e.g., the OPEC cartel) the host terrorist agreement may be vulnerable to breakdown .A vivid example of an apparent breach of a coalition was the terrorist bomb in Indonesia in October 2002. This incident illustrates the fragility of coalitions. Notwithstanding that fragility, venal or myopic host government officials may participate in a coalition because of the gains to their own self-interest.

There is symmetry between the economics of the free-rider scenario and the economics of the coalition scenario. In the former the free riders have a clear incentive to encourage retaliation by others while they publicly condemn the terrorists operating from within their own borders. The host nations avoid the economic sanctions and they derive benefits from the reduction of the terrorist threats to themselves.

When a host nation enters into a coalition with terrorists, mendacious officials of the host government will publicly condemn terrorism, and thereby avert economic sanctions. But they will privately condone the terrorist acts through the support and shelter they provide to the terrorists. And they will enrich themselves through this duplicitous conduct. If the United States and its genuine allies are to be effective in suppressing multinational terrorism they must devise policies that will preclude strategic coalitions between host nations and terrorists.