Agents of Destruction? Applying Principal-Agent Analysis to State-Sponsored Terrorism

This article evaluates state-sponsored terrorism as a principal-agent issue. More often applied to the study of licit national or international institutions as a way to improve their governance, we argue that applying principal-agent analysis to illicit relationships such as those between states and terrorist agents is an equally fruitful application, though one with different objectives. Rather than being used as a tool to improve governance, applying principal-agent analysis to illicit relationships such as state-sponsored terrorism may point to areas of susceptibility and thus inform more effective counterterrorism strategies. In this article, we explain why states delegate to terrorist groups, how they seek to control their agents, and the tensions in the relationship, both generally and through specific reference to Iran's sponsorship of Hizballah, Syria of various Palestinian groups, and the Taliban of al-Qa'ida. This analysis yields propositions about the conditions under which states are likely to delegate to terrorist groups and specific recommendations on how principal-agent problems of these illicit relationships may be used in practice to combat terrorism.