The Economics of Roadside Bombs

The U.S. military, despite spending over $13 billion, appears powerless to stop the Iraqi insurgency's improvised explosive devices (IEDs), which cause most of the military's casualties and prevent victory by showing lawlessness and insecurity. However, this view ignores substitution effects we consider here. Using rational choice and expectations models, we find a backward-bending supply curve of attacks-- insurgents increase the resources for IED attacks when IEDs are made less effective, but must therefore reduce non-IED attacks 2% for every 1% decrease in IED effectiveness. The success of the counter-IED effort has thus been significantly underestimated.