This paper models an extortionary relationship between a pipeline operator and a guerrilla movement. Payment and attack decisions are modeled as an infinite-horizon Markov decision process, where each period the oil company chooses to pay or not pay an extortion demand and the movement decides to attack or not. Decisions depend on the level of single-period payoff and discounted expected future payoffs. We estimate the model with pipeline attack data and compare parameters when the discount factor is changed. We reject a zero discount factor hypothesis, demonstrating that the movement's observed attack pattern is compatible with extortionary behavior.
