When terrorism is evidence of state success: securing the state against territorial groups

I develop a game-theoretic model in which the state first allocates limited resources across defensive and offensive security measures, simultaneously choosing whether to attempt forceful elimination of the group. The group subsequently chooses whether to use terrorism or attempt to take territory via guerrilla tactics. The results suggest that states most capable of fighting groups with territorial objectives experience the highest levels of terrorism. Under weak conditions, states always allocate their resources to deter groups from carrying out guerrilla attacks. Accordingly, when it is possible for both guerrilla and terrorist attacks to be optimal for a group, states allocate resources to ensure a terrorist campaign, even though this (mis)allocation facilitates more costly terrorist attacks than happen when facing a group that only uses terrorism.