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One Kind of Lawlessness: Estimating the Welfare Cost of Somali Piracy

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  • Tim Besley
  • Thiemo Fetzer
  • Hannes Mueller

    ()

Abstract

This paper estimates the effect of piracy attacks on shipping costs using a unique data set on shipping contracts in the dry bulk market. We look at shipping routes whose shortest path exposes them to piracy attacks and find that the increase in attacks in 2008 lead to around a ten percent increase in shipping costs. We use this estimate to get a sense of the welfare loss imposed by piracy. Our intermediate estimate suggests that the creation of $120 million of revenue for pirates in the Somalia area led to a welfare loss of over $1.5 billion.

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Bibliographic Info

Paper provided by Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) in its series UFAE and IAE Working Papers with number 898.12.

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Length: 66
Date of creation: 20 Apr 2012
Date of revision:
Handle: RePEc:aub:autbar:898.12

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Keywords: piracy; welfare loss; maritime transport; Somalia; private security; law and order; property rights;

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References

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  1. Dave Donaldson, 2010. "Railroads of the Raj: Estimating the Impact of Transportation Infrastructure," NBER Working Papers 16487, National Bureau of Economic Research, Inc.
  2. Anja Shortland, 2011. ""Robin Hook": The Developmental Effects of Somali Piracy," CEDI Discussion Paper Series, Centre for Economic Development and Institutions(CEDI), Brunel University 11-07, Centre for Economic Development and Institutions(CEDI), Brunel University.
  3. Inmaculada Martínez-Zarzoso & Sami Bensassi, 2011. "The price of modern maritime piracy," Ibero America Institute for Econ. Research (IAI) Discussion Papers 213, Ibero-America Institute for Economic Research.
  4. Peter T. Leeson, 2007. "An-arrgh-chy: The Law and Economics of Pirate Organization," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 115(6), pages 1049-1094, December.
  5. Attila Ambrus & Eric Chaney & Igor Salitskiy, 2011. "Pirates of the Mediterranean: An Empirical Investigation of Bargaining with Transaction Costs," Working Papers, Duke University, Department of Economics 11-24, Duke University, Department of Economics.
  6. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, Econometric Society, vol. 57(2), pages 357-84, March.
  7. Attila Ambrus & Eric Chaney & Igor Salitskiy, 2011. "Appendix for Pirates of the Mediterranean: An Empirical Investigation of Bargaining with Transaction Costs," Working Papers, Duke University, Department of Economics 11-25, Duke University, Department of Economics.
  8. Anne-Célia Disdier & Keith Head, 2008. "The Puzzling Persistence of the Distance Effect on Bilateral Trade," The Review of Economics and Statistics, MIT Press, vol. 90(1), pages 37-48, February.
  9. Douglass C. North, 1968. "Sources of Productivity Change in Ocean Shipping, 1600-1850," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 76, pages 953.
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  11. Benjamin A. Olken & Rohini Pande, 2011. "Corruption in Developing Countries," NBER Working Papers 17398, National Bureau of Economic Research, Inc.
  12. Daron Acemoglu & Simon Johnson & James A. Robinson, 2000. "The Colonial Origins of Comparative Development: An Empirical Investigation," NBER Working Papers 7771, National Bureau of Economic Research, Inc.
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  14. Hamilton, James D., 1990. "Analysis of time series subject to changes in regime," Journal of Econometrics, Elsevier, Elsevier, vol. 45(1-2), pages 39-70.
  15. James Feyrer, 2011. "Distance, Trade, and Income -- The 1967 to 1975 Closing of the Suez Canal as a Natural Experiment," 2011 Meeting Papers 1438, Society for Economic Dynamics.
  16. Benjamin A. Olken & Patrick Barron, 2009. "The Simple Economics of Extortion: Evidence from Trucking in Aceh," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 117(3), pages 417-452, 06.
  17. de Meza, David & Gould, J R, 1992. "The Social Efficiency of Private Decisions to Enforce Property Rights," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 100(3), pages 561-80, June.
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  1. Pirates paper of the day
    by UDADISI in UDADISI on 2012-05-11 19:38:00
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Cited by:
  1. Ludwig, Markus & Flückiger, Matthias, 2014. "Economic Shocks in the Fisheries Sector and Maritime Piracy," MPRA Paper 56959, University Library of Munich, Germany.
  2. Anja Shortland & Federico Varese, 2012. "The Business of Pirate Protection," Economics of Security Working Paper Series 75, DIW Berlin, German Institute for Economic Research.
  3. Olaf J. de Groot & Matthew D. Rablen & Anja Shortland, 2012. "Barrgh-gaining with Somali Pirates," Economics of Security Working Paper Series 74, DIW Berlin, German Institute for Economic Research.

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