On the Value of Terrorist's Private Information in Government's Defensive Resource Allocation Problem

Authors: Mohammad E. Nikoofal & Mehmet Gumus

Publication: IIE Transactions

Abstract:

The ability to understand and predict the sequence of events leading to a terrorist attack is one
of the main issues in developing pre-emptive defense strategies for homeland security. In this
paper, we explore the value of terrorist’s private information on government’s defense allocation
decision. In particular, we consider two settings with different informational structures.
In the first setting, the government knows the terrorist’s target preference but does not know
whether the terrorist is fully rational in his target selection decision. In the second setting,
the government knows the degree of rationality of the terrorist, but does not know the terrorist’s
target preference. We fully characterize the government’s equilibrium budget allocation
strategy for each setting and show that the government makes resource allocation decisions by
comparing her valuation for each target with a set of thresholds. We then derive the value of
information (VOI) from the perspective of the government for each setting. Our results show
that VOI mainly depends on the government’s budget and the degree of heterogeneity among
the targets. In general, VOI goes to zero when government’s budget is high enough. But, the
impact of heterogeneity among the targets on VOI further depends on whether the terrorist’s
target preference matches with government’s or not. Finally, we perform various extensions on
the baseline model and show that the structural properties of budget allocation equilibrium still
hold true.

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