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Università Di Bologna DOTTORATO DI RICERCA IN Allma Mater Studiiorum – Uniiversiità dii Bollogna DOTTORATO DI RICERCA IN EUROPEAN DOCTORATE IN LAW AND ECONOMICS Ciclo 280 Settore Concorsuale di afferenza: 13/A4 Settore Scientifico disciplinare: SECS-P/06 TITOLO TESI Essays on the Law and Economics of Terrorism in Pakistan Presentata da: Faiz Ur Rehman Coordinatore Dottorato Relatore Prof. Luigi Franzoni Prof. Michael Faure Prof.Paolo Vanin Esame finale anno 2015 Essays on the Law & Economics of Terrorism in Pakistan Faiz Ur Rehman Advisors: Prof. Paolo Vanin & Prof. Michael Faure Dedicated to my Mother, who never went to school, but made sure every morning that I left for school Acknowledgments The pursuit of the Ph.D. considers as a solitary endeavor. However, the final product is the result of an intensive collaborative process. It requires the platonic consideration of many scholars and their published research. It may not be possible for me to personally thank every scholar whose work has inspired my dissertation; nevertheless, the bibliography at the end of the thesis could be considered as a tribute to them. The final thesis also becomes a collaborative output by seeking out advice and guidance from supervisors, mentors, colleagues and friends. During this period, supervisors became mentors and colleagues became friends. There are many individuals and institutions to which I am grateful for their support and suggestions, and without them, this work would have looked incomplete. In this context, financial support from the European Commission through Education, Audiovisual and Culture Executive Agency (EACEA) for the Erasmus Mundus Programme is and will be highly acknowledged. Let me begin with my supervisors, professor Paolo Vanin and Michael Faure. The academic freedom and discussion with which they entrusted me throughout my study, and, their suggestions and ideas at important time and junctures have shaped this thesis into what it looks today. I am sure; their influence will nurture itself further along my academic path. At Bologna, Hamburg and Rotterdam law and economics institutions, I benefited greatly from the discussions with my colleagues. With regards to the econometric analysis, specifically, discussion on identification issues, Diogo Gerhard Castro de Britto was always available for suggestions and comments. Maximilian Kerk, Shilpi Bhattacharya, Se´an O´ Braon´ain,Tobias Hlobil, Yugank Goyal and Victor Livio Enmanuel Cede~no-Breahave supported me mentally and academically in the early stage of my Ph.D. Finally, I am thankful to Alice Guerra, Ignacio Nicol´asCofone, Maria Pia Sacco, Min Lin, Miriam Buiten and Stephan Michel for their cooperation and support at different stages of this study. I also want to mention the support of my close friends which they provided me in the three years of my doctorate study. Muhammad Nasir, himself a Ph.D. student, was always available for discussions. He provided his valuable thoughts on each and every part of the different chapters. ii Chapters2&3 benefited extensively from his comments and critiques. Similarly, the support of Aqeel Ahmad Khan, Zahir Shah and Amanat Ali enabled me to carry on with my studies with ease and patience. Their time for different issues back in Pakistan helped me to concentrate on my studies. Finally, I am also thankful to Goher Aman Afridi, Muhammad Qayum, Nadeem Iqbal and Aiman Amjad. I am also grateful to the faculty of the law and economics in the three universities of the EDLE Programme, who provided their timely feedback during different seminars and workshops. Lastly, I am indebted to my parents and siblings for their support, love, patience and encouragement. Love you all ª. iii Summary This thesis explores the origin of sectarian violence and terrorism, the impact of terrorism risk on the individual's democratic preferences and the deterrence effect of the law enforcement interventions against terrorism and violence over time and space in Pakistan. It comprises of six chapters which fall under the category of `Illegal Behavior and the Enforcement of Law.' The causes and effects of the illegal behavior (terrorism and violence) have been discussed in the chapters2&3, while, chapters4&5 focus on the enforcement of law against these crimes. Chapter 2 serves two core dimensions: Firstly, to cater for the historical account of the origin of sectarian violence and terrorism and their temporal variation in Pakistan. Secondly, the con- struction of these crimes has been presented from the religious market perspective. Adam Smith argues in The Wealth of Nations that \... the hazards of government regulation are as real for religion as for any other sector of the economy." Therefore, chapter2 advocates historical evidence on the hazards of government interventions in the religious market of Pakistan. It explains that rent-seeking behavior on the part of the three players in the religious market, namely, religious sects, government and cold war allies of Pakistan, leads to regular interventions in the religious market. The interventions produce externalities in the form of intolerance in the religious space which slowly and gradually transforms into sectarian violence and terrorism. The 3rd chapter discusses exposure to the risk of terrorism and its impact on the individual's preferences for liberal democratic values. It explores the following question: Does exposure to terrorism and violence affect democratic opinions and perceptions? Exploiting the individual level socio-economic, religious and political information collected from the 6,000 respondents, the chapter empirically evaluates and presents evidence that acts of terrorism negatively affect preferences towards democratic institutions. The persistent shocks of terrorism decrease the support for the elected legislators while increasing it for the law enforcement institutions like the armed forces. The deterrence effect of the exogenous intervention by law enforcement institutions on different types of tribal violence is explained in the 4th chapter of the thesis. Approximately, 3% territory in the North-West of Pakistan is ungoverned but constitutionally presented in the lower and up- per houses. It has never been exposed to modern law enforcement institutions like the judiciary, iv police and military. Thus, it experienced pervasive tribal violence, revenge killings and drug traf- ficking over the years. The incident of the September 11, 2001 and the consequent US invasion of Afghanistan provided an exogenous shock to the military institution to enter the ungoverned space for the first time. The empirical results show that the intervention significantly decreases different types of violent conflicts in the ungoverned terrain. Finally, chapter 5 explores criminologists' hypotheses on the displacement and diffusion of crime control benefits to test the displacement and diffusion effects of anti-terrorism interventions. The empirical analysis highlights that anti-terror interventions displace terrorist activities from the treated to the non-treated districts, thus, impose a significant public cost on the neighborhood. Displacement of the terrorist activities from one district to another in response to the negative sanctions imposed by the law enforcement agencies might be one of the reasons for the pervasiveness of terrorism in Pakistan. With regard to the policy, this dissertation suggests the following recommendations: First, a more comprehensive understanding of the interactions between violent conflicts and the democra- tization process is needed. The democratic transition can revert to autocracy, if voters are exposed to persistence terrorism risks. Second, an ungoverned territory may not produce negative exter- nalities in the form of organized crimes including terrorism in the short-term, but, exposes to such crimes in the long-term. Therefore, a responsible state needs to invest in the establishment and capacity building of the law enforcement institutions in such territories to avoid future spillovers. And third, effective law enforcement interventions requires not only to deter violence and terrorism in the given geographic space but also their externalities into the neighborhood. v Contents 1 Introduction 1 1.1 Terrorism: Definition....................................1 1.2 Prevalence and Cost of Terrorism and Violence.....................2 1.3 Democracy Vs. Coup D'´etatin Pakistan........................5 1.4 Description of the Problem and Purpose of this Dissertation..............7 1.5 Significance of the Dissertation.............................. 14 2 The Production of Terrorism in Pakistan: A Historical Perspective 16 2.1 Introduction......................................... 16 2.2 Related Literature on the Causes of Terrorism..................... 19 2.3 Religious Market...................................... 22 2.3.1 The Nature of the Religious Market: Smith Vs. Hume............. 22 2.3.2 The Islamic Religious Market........................... 23 2.3.3 The Religious Market in Pakistan........................ 25 2.4 Legal Shocks to the Religious Market and Rent-Seeking................ 30 2.4.1 The Second Amendment.............................. 30 2.4.2 The Islamization Amendments.......................... 31 2.5 Hazards of Government Regulations........................... 34 2.5.1 The Short Run Hazards.............................. 34 2.5.2 The Medium Term Hazards............................ 34 2.5.3 The Long Term Hazards: Terrorism....................... 38 2.6 Discussion & Conclusion................................. 41 vi 3 Terrorism Risk and Democratic
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