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This article aims to improve scholars' understanding of how transnational terrorist organizations emerge, survive, thrive, and eventually die.The authors use a data set that catalogues terrorist organizations and their attacks over time (the ITERATE database of thousands of terrorist events from 1968 through 2007) and merge those data with socioeconomic information about the environment in which each attack occurs. They use these data to trace the life cycle pattern of terrorist activity and the organizations that perpetrate them. They identify at least two types of terrorist organizations— recidivists and one-hit wonders. The authors find that recidivist organizations, those that have repeatedly attacked, are less likely to survive once political and socioeconomic factors have been included. However, they find that sporadic or one-hit wonders are not easily deterred by socioeconomic factors, leaving open a role for counterinsurgency tactics.

We develop an economic model of terrorism. Groups undertake violent activities to change the status quo when they are unable to bring about drastic political change in the face of limited access to economic opportunity. Furthermore, these groups are more likely to resort to terrorist activity when they face powerful policy-making elites who can't be uprooted easily, by legitimate means or otherwise. If, on the other hand, the elite groups currently in power are weak but can't be removed from power legitimately, the dissident groups are likely to initiate rebellion activity, such as civil wars and coups, to take over the rule of the governing elite themselves. In particular, the model exhibits multiple equilibria. For example, one equilibrium can be sustained where groups with limited access to opportunity may find it rational to engage in terrorist activities while policy-maker elites may find it rational not to engage in opening access to these groups. The result is, then, a pattern of reduced economic activity and increased terrorism. An alternative equilibrium can be sustained where access is more abundant and terrorism is reduced.