Two agents produce, retaliate, and defend against a terrorist. Retaliation is a public good which decreases the terrorist's resource. We show when agents free ride on each other's public good provision, and when they provide it jointly. An agent with low unit production cost does not retaliate even when being more resourceful or having lower unit retaliation cost than the other agent. Instead, the first agent selfishly uses its resource to produce and defend its own production. We also allow trade where one agent specialises in production and the other agent specialises in retaliation. Trade alleviates the free-rider problem. The retaliating agent retaliates substantially more than the joint retaliation of both agents without trade, to the detriment of the terrorist. The results are applicable to determine the balance countries individually and collectively make between defence and retaliation to decrease and curtail the terrorism threat. A variety of insights are provided.
Keywords: production, terror defence, retaliation, trade, substitution effect, terrorism.