Most interpretations of prevalent counterinsurgency theory imply that increasing government services reduces rebel violence. Empirically, however, development programs and economic activity sometimes increase violence. Using new panel data on development spending in Iraq, we show that violence-reducing effects of development assistance are greater when: (i) projects are small; (ii) troop strength is high; and (iii) professional development expertise is available. These findings are consistent with an information-centric (“hearts and minds”) model, which implies that violence-reduction is greatest when projects are secure, valued by community members, and services derived are conditional on government control of the territory.

Participating in insurgency is physically risky. Why do people do so? Using new data on 3,799 payments to insurgent fighters by Al Qa'ida Iraq, we find that: (i) wages were extremely low relative to outside options, even compared to unskilled labor; (ii) the estimated risk premium is negative; and (iii) the wage schedule favors equalization and provides additional compensation for larger families. These results challenge the notion that fighters are paid their marginal product, or the opportunity cost of their time. They may be consistent with a “lemons” model in which fighters signal commitment by accepting low wages.