To Bargain or Not to Bargain: That is the Question

In November 1986, news media revelations disclosed that the Reagan Administration had deviated significantly from its stated policy of never negotiating with terrorists when it traded arms to obtain the freedom of three Americans-Rev. Benjamin Weir in September 1985, Rev. Lawrence Jenco in July 1986, and David Jacobsen in November 1986. On January 26, 1987, terrorists, posing as policemen, kidnapped an Indian and three American professors at the American University of Beirut, thereby replacing the three Americans previously bartered away. Accepted wisdom, heard almost daily in newscasts, maintains that one should never bargain with terrorists since such negotiations encourage more hostage taking by making it a profitable activity; recent events in Beirut seem to support conventional views. Yet even the staunchest supporter of the no-negotiation strategy of precommitment, the Israelis, has made noteworthy exceptions in the case of the school children taken hostage at Maalot in May 1974,' and during the hijacking of TWA Flight 847 in June 1985. Another exception involved the Israelis' release of 1,150 Arab prisoners, including Kozo Okomato, in a negotiated swap for three Israeli soldiers in May 1985 (The Economist, 1987, p. 29). Okomato, a Japanese Red Army Faction member, was the sole surviving terrorist in the Lod Airport massacre of 1972, which left 27 people dead and 78 injured. We use economic analysis in a simple game-theory framework to ascertain under what circumstances a government would want to precommit itself to a no-negotiation strategy. From the government viewpoint, we examine both the choice of deterrence expenditure (i.e., expense meant to reduce terrorist logistical success during incidents) and whether to negotiate or not. Our analysis demonstrates that the beliefs and the resolve of the terrorists are crucial in identifying the rather restrictive scenarios in which a no-negotiation strategy is desirable in the case of a credible precommitment.2 When governmental declarations are not completely credible and uncertainty characterizes the government's costs of not negotiating, then never negotiating is likely to be time inconsistent and not a plausible policy. In a multiperiod model, reputation effects may not be sufficient for a government to maintain a policy of never negotiating with hostage-taking terrorists owing to public choice considerations. Perhaps surprising, the conventional wisdom regarding the nonegotiation strategy does not withstand theoretical scrutiny except in a limited number of contrived cases.