This article distinguishes the demand from the supply of counterterrorism following either a large-scale terrorist attack or campaign. On the demand side, terrorism shocks increase the willingness of civilians to sacrifice their liberties for security, thereby giving the government a mandate to augment defensive and proactive measures against the terrorists. The supply side differs greatly between domestic and transnational terrorism. Supply problems may plague countermeasures against

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... nal terrorism as atrisk nations act strategically. In particular, there is a strong proclivity for nations to overspend on defense and to underspend on proactive measures. These tendencies are explored using simple game theory. A country's sovereignty also bolsters the ability of targeted nations to address domestic terrorism with an appropriate mix of counterterrorism measures.