Economics, Finance, & Quantitative Analysis
This model examines the role of intelligence gathering and screening in providing airport security. We analyze this problem using a game between the government and a terrorist. By investing in intelligence gathering, the government can improve the precision of its information. In contrast, screening can be used to search a passenger and thereby deter terrorist attacks. We determine the optimal allocation of resources between these two strategies wherein we model the role of intelligence using the concept of supermodular precision. One striking result is that under certain circumstances, an increase in the investment in intelligence can induce a more devious terrorist to attack with a higher probability. We also find that when there is a cost-reducing innovation in the screening technology, then the optimal investment in intelligence gathering can go either way. However, such an innovation unambiguously improves social welfare. Another interesting implication is that a developed economy would value intelligence inputs more than a developing economy. We also examine the efficacy of a program such as PreCheck that allows some select passengers expedited screening in exchange for voluntarily revealing information about themselves. Our analysis shows that such a program can be used to cushion the adverse effect of budgetary shortages. Finally, we also examine the role of enhanced punishment on the optimal level of intelligence. We find that the result can go both ways. If the initial level of punishment is high, then any further enhancement reduces the optimal level of intelligence gathering. However, this result is reversed if the initial level of punishment is low.
Aniruddha Bagchi and Jomon Paul, “Optimal Allocation of Resources in Airport Security: Profiling vs. Screening,” Operations Research (2014), 62(2), 219-233. http://dx.doi.org/10.1287/opre.2013.1241