Terrorism, Skyjacking & Embezzlement

Llad PhillipsLlad Phillips 11

Terrorism, Skyjacking & Embezzlement

Foreign and DomesticForeign and Domestic


Points About Terrorism Definition: The killing and injuring of innocent Definition: The killing and injuring of innocent

civilians for political purposescivilians for political purposes The The perceivedperceived threat from foreign terrorists to the threat from foreign terrorists to the

USA (at home) is relatively new (since 9/11)USA (at home) is relatively new (since 9/11) Earlier skyjackings in the US were not by terroristsEarlier skyjackings in the US were not by terrorists Terrorism has been a threat since World War II in Terrorism has been a threat since World War II in

Europe, much of it connected to the Middle EastEurope, much of it connected to the Middle East We can learn from comparing the US reaction to We can learn from comparing the US reaction to

skyjacking, and attempts to control itskyjacking, and attempts to control it


Post 9-11

AttackAttack– whatwhat

– howhow

– wherewhere

– whenwhen

– why? Why don’t our why? Why don’t our enemies love us?enemies love us?

Defense (focus)Defense (focus)– whatwhat

– howhow

– wherewhere

– whenwhen

– why were we not why were we not prepared for the prepared for the attack?attack?


US Wars Domestic (over here)Domestic (over here)

– independenceindependence

– 18121812

– CivilCivil

Foreign (Foreign (over thereover there))– Mexico: Halls of Mexico: Halls of

MoctezumaMoctezuma

– Spanish: San Juan Hill Spanish: San Juan Hill & Manila Bay& Manila Bay

– WWI: FranceWWI: France

– WWII: North Africa, WWII: North Africa, Europe, PacificEurope, Pacific

– KoreaKorea

– VietnamVietnam

– Gulf: Desert StormGulf: Desert Storm

– Afghanistan and Iraq Afghanistan and Iraq

http://www.firstworldwar.com/audio/overthere.htm


Why were we not Prepared?Theme #1: “Over there… “

Chorus Over there, over there, Send the word, send the word over there - That the Yanks are coming, The Yanks are coming, The drums rum-tumming Ev'rywhere. So prepare, say a pray'r, Send the word, send the word to beware. We'll be over, we're coming over, And we won't come back till it's over Over there.

http://www.firstworldwar.com/audio/overthere.com


America’s Best Known World War I Song

““Over there, over there, send the word, send Over there, over there, send the word, send the word over there, that the yanks are the word over there, that the yanks are coming, ….coming, ….


Terrorism in the USA

Home grownHome grown Foreign importsForeign imports RemediesRemedies


Over There

There have not been very many politically There have not been very many politically motivated attacks by foreign terrorists on motivated attacks by foreign terrorists on the domestic USA until 9-11the domestic USA until 9-11– World Trade Center ( Feb. 26, 1993)World Trade Center ( Feb. 26, 1993)


Learning from History

Skyjacking in the USASkyjacking in the USA– first in the USA was 1961first in the USA was 1961– in contrast to skyjackings abroad, at most one in contrast to skyjackings abroad, at most one

skyjacking at home was, maybe, politically skyjacking at home was, maybe, politically motivated by a someone with connections to motivated by a someone with connections to the Balkansthe Balkans


Learning from Economics

Thwarting embezzlementThwarting embezzlement– inspection, I. E. auditinspection, I. E. audit


Recent History of US Terrorism

BombingsBombings– World Trade Center, New YorkWorld Trade Center, New York

6 killed, 1000+ injureed6 killed, 1000+ injureed

– Murtaugh Federal Building, Oklahoma CityMurtaugh Federal Building, Oklahoma City– Black ChurchesBlack Churches

SkyjackingsSkyjackings


WTC 1993WTC 1993Blackhawk Down 1993Blackhawk Down 1993

Saudi Arabia 1996Saudi Arabia 1996Africa 1998Africa 1998


USS Cole 2000USS Cole 2000

9/119/11

Reward: $2,000,000


http://news.bbc.co.uk/onthisday/hi/dates/stories/february/26/newsid_2516000/2516469.stm


Facts:Facts:My My LectureLecture# 7 On# 7 OnCorrectionsCorrectionsBureaucracyBureaucracy

““corrected”corrected”


Total International Terrorist AttacksTotal International Terrorist Attacks

http://www.state.govhttp://www.state.govOffice of the CoordinatorOffice of the Coordinatorfor Counter-Terrorismfor Counter-TerrorismPatterns of Global TerrorismPatterns of Global Terrorism


Note: TheNote: TheSmall # ofSmall # ofAttacks inAttacks inNorthNorthAmericaAmerica


Shock valueShock valueOf 9/11Of 9/11Few attacksFew attacksIn NorthIn NorthAmerica, butAmerica, butMany Many CasualtiesCasualties



Actual and Attempted Bombings in the US .

0

500

1000

1500

2000

2500

3000

35001

97

3

19

74

19

75

19

76

19

77

19

78

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79

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Casualties from Bombings, US .

1

10

100

1000

100001

97

3

19

75

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77

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79

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81

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93

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Injured

Killed


Skyjackings

The first skyjacking was a Peruvian carrier The first skyjacking was a Peruvian carrier in February 1931in February 1931

The first skyjacking of a US carrier was a The first skyjacking of a US carrier was a National Airlines flight destined for Key National Airlines flight destined for Key West Florida on May 1, 1961West Florida on May 1, 1961


Skyjackings Involving US Civil Aviation .

0

5

10

15

20

25

30

35

40

19

31

19

34

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37

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40

19

43

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46

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49

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52

19

55

19

58

19

61

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64

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67

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70

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73

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79

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88

Year

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er


The Legend of D. B. CooperThe Legend of D. B. Cooper



US Response to Domestic Skyjackings

Armed Federal Marshals on FlightsArmed Federal Marshals on Flights– mostly on flights on the Eastern seaboard mostly on flights on the Eastern seaboard

corridorcorridor Congress Passes the US Civil Aviation Congress Passes the US Civil Aviation

Security Program in 1973Security Program in 1973


Airline Passengers Screened, in Millions, US .

0

200

400

600

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1000

1200

14001

97

6

19

77

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78

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95

Year

Mil

lio

ns


Firearms Detected From Screening Airline Passengers, US .

0

500

1000

1500

2000

2500

3000

3500

40001

97

6

19

77

19

78

19

79

19

80

19

81

19

82

19

83

19

84

19

85

19

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95

Year

Nu

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er


Explosive Devices Detected From Screening Airline Passengers .

1

10

100

10001

97

6

19

77

19

78

19

79

19

80

19

81

19

82

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er


Skyjackings: Foreign and Domestic .

0

10

20

30

40

50

60

19

61

19

63

19

65

19

67

19

69

19

71

19

73

19

75

19

77

19

79

19

81

19

83

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85

19

87

19

89

Year

Nu

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er

US

Foreign


US Versus Foreign Skyjackings .

1983

1990

1980

1973

1972

1968

1961

0

5

10

15

20

25

30

35

40

0 10 20 30 40 50 60

Foreign

US


Domestic Vs. Foreign Skyjackings and the Security Act of '73 .

1990

1973

1968

1972

1969

0

5

10

15

20

25

30

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40

0 10 20 30 40 50 60

Foreign

US

US

Fitted


Terrorism

Foreign Skyjackings

USSkyjackings

Model of US Skyjackings and Bomb Threats

Bomb Threatsto US Aircraft Inspection

2 Year Lag


Bomb Threats to US Aircraft .

0

500

1000

1500

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25001

96

1

19

63

19

65

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67

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69

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19

77

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79

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19

89

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Bomb Threats To US Aircraft Vs. Foreign Skyjackings (Lagged Two Years) .

0

500

1000

1500

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2500

19

61

19

63

19

65

19

67

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69

19

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73

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19

77

19

79

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Bomb Threats

Fitted


Borch Model of Inspection Two actorsTwo actors

– employee(embezzler) & firmemployee(embezzler) & firm– skyjacker & airport securityskyjacker & airport security

Two sets of values or payoffs to the Two sets of values or payoffs to the outcomesoutcomes

No dominant strategy for either actorNo dominant strategy for either actor Need to keep your adversary guessingNeed to keep your adversary guessing Embezzler’s expected outcome: break evenEmbezzler’s expected outcome: break even Firm’s expected outcome: dead-weight cost Firm’s expected outcome: dead-weight cost

of inspectionof inspection


US Arrests for Embezzlement Per 100,000 Population .

0

1

2

3

4

5

6

7

19

72

19

73

19

74

19

75

19

76

19

77

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Rate


Defense Against Embezzlement and SkyjackingDefense Against Embezzlement and Skyjacking

I. Options for choice: States of the worldI. Options for choice: States of the world

FirmFirm

EmployeeEmployee

AuditAudit NoNo

EmbezzleEmbezzle

NotNot

E E AA E E ÂÂ

Ê Ê AA Ê Ê ÂÂ



II. Valuation of the options, i.e. choicesII. Valuation of the options, i.e. choicesA. Payoffs to the employeeA. Payoffs to the employee AuditAudit

EmbezzleEmbezzle

NotNot 00 00

NoNo

- - GG

B. Payoffs to the firmB. Payoffs to the firm AuditAudit

EmbezzleEmbezzle

NotNot

- C- C - L- L

- C- C 00

NoNo


Circular Contest Best outcome for the employeeBest outcome for the employee

– embezzle and no auditembezzle and no audit Best outcome for the firmBest outcome for the firm

– no embezzling and no auditno embezzling and no audit Worst outcome for the employeeWorst outcome for the employee

– embezzle and get auditedembezzle and get audited Worst outcome for the firmWorst outcome for the firm

– don’t audit and get embezzleddon’t audit and get embezzled


Payoff to the FirmPayoff to the Firm++

--

Payoff to the EmployeePayoff to the Employee

++--Ê Ê ÂÂ



--


++--Ê Ê ÂÂ

Ê Ê AA

- C- C



--


++--Ê Ê ÂÂ

Ê Ê AA

- C- CE E AA

- -



--


++--Ê Ê ÂÂ

Ê Ê AA

- C- CE E AA

- -

- L- L

GG

E E ÂÂ



--


++--Ê Ê ÂÂ

Ê Ê AA

- C- CE E AA

- -

- L- L

GG

E E ÂÂ

Probability of Audit = 0Probability of Audit = 0

Probability of audit = 1Probability of audit = 1


Firm Can Choose A Probability Of Audit Between 0 and 1

If PIf PA A = 1, then employee loses - = 1, then employee loses - If PIf PA A = 0, then employee gains G= 0, then employee gains G

How about a probability between 0 and 1 How about a probability between 0 and 1 like G/( like G/( + G) + G)



--


++--Ê Ê ÂÂ

Ê Ê AA

- C- CE E AA

- -

- L- L

GG

E E ÂÂ

Probability of Audit = 0Probability of Audit = 0

Probability of audit = 1Probability of audit = 1



Keep Your Adversary GuessingKeep Your Adversary GuessingExpected Payoff to the employeeExpected Payoff to the employee

Audit:Audit:PPAA

Embezzle: PEmbezzle: PEE

Not: 1- PNot: 1- PEE 00 00

No:No:1 - P1 - PAA

- - GG

PPE E PPAA(- (- ) + P) + PEE(1 - P(1 - PAA) G = 0 = No Incentive) G = 0 = No Incentive

PPAA(- (- ) + P) + PAA(- G) + G = 0 = P(- G) + G = 0 = PAA( ( + G) - G + G) - G

PPAA = G / ( = G / (+ G)+ G)


PPEE

1.01.0

00PPAA

1.01.0G/( G/( + G)+ G)

Reaction Curve of the Employee to the FirmReaction Curve of the Employee to the Firm


PPEE

1.01.0

00PPAA

1.01.0G/( G/( + G)+ G)



PPEE

1.01.0

00PPAA

1.01.0G/( G/( + G)+ G)



Reaction Curve of the Firm to the EmployeeReaction Curve of the Firm to the EmployeeVVF F = P= PEEPPAA(-C) +(1-P(-C) +(1-PEE)P)PAA(-C) + P(-C) + PEE(1-P(1-PA)(-L)

00

1.01.0

00 1.01.0

PPEE

PPAA

C/LC/L


Reaction Curve of the Firm to the EmployeeReaction Curve of the Firm to the EmployeeVVF F = P= PEEPPAA(-C) +(1-P(-C) +(1-PEE)P)PAA(-C) + P(-C) + PEE(1-P(1-PA)(-L)

00

1.01.0

00 1.01.0

PPEE

PPAA

C/LC/L

G/(G+G/(G+



Post 9-11

AttackAttack– whatwhat

– howhow

– wherewhere

– whenwhen

– why? Why don’t our why? Why don’t our enemies love us?enemies love us?

Defense (focus)Defense (focus)– whatwhat

– howhow

– wherewhere

– whenwhen

– why were we not why were we not prepared for the prepared for the attack?attack?

Documents

Terrorism, Skyjacking & Embezzlement