IDEAS home Printed from https://ideas.repec.org/p/ehl/lserod/66041.html
   My bibliography  Save this paper

The welfare cost of lawlessness: evidence from Somali piracy

Author

Listed:
  • Besley, Timothy
  • Fetzer, Thiemo
  • Mueller, Hannes

Abstract

In spite of general agreement that establishing the rule of law is central to properly functioning economies, little is known about the cost of law and order breakdowns. This paper studies a specific context of this by estimating the effect of Somali piracy attacks on shipping costs using data on shipping contracts in the dry bulk market. To estimate the effect of piracy, we look at shipping routes whose shortest path exposes them to piracy and find that the increase in attacks in 2008 led to around an 8% to 12% increase in costs. From this we calculate the welfare loss imposed by piracy. We estimate that generating around 120 USD million of revenue for Somali pirates led to a welfare loss in excess of 630 USD million, making piracy an expensive way of making transfers.

Suggested Citation

  • Besley, Timothy & Fetzer, Thiemo & Mueller, Hannes, 2015. "The welfare cost of lawlessness: evidence from Somali piracy," LSE Research Online Documents on Economics 66041, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:66041
    as

    Download full text from publisher

    File URL: http://eprints.lse.ac.uk/66041/
    File Function: Open access version.
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Besley, Timothy & Ghatak, Maitreesh, 2010. "Property Rights and Economic Development," Handbook of Development Economics, in: Dani Rodrik & Mark Rosenzweig (ed.), Handbook of Development Economics, edition 1, volume 5, chapter 0, pages 4525-4595, Elsevier.
    2. Timothy Besley & Hannes Mueller, 2012. "Estimating the Peace Dividend: The Impact of Violence on House Prices in Northern Ireland," American Economic Review, American Economic Association, vol. 102(2), pages 810-833, April.
    3. Inmaculada Mart�nez-Zarzoso & Sami Bensassi, 2013. "The Price Of Modern Maritime Piracy," Defence and Peace Economics, Taylor & Francis Journals, vol. 24(5), pages 397-418, October.
    4. André de Palma & Robin Lindsey & Emile Quinet & Robert Vickerman, 2011. "Handbook Of Transport Economics," PSE-Ecole d'économie de Paris (Postprint) halshs-00754912, HAL.
    5. Anderson, James E. & Bandiera, Oriana, 2006. "Traders, cops and robbers," Journal of International Economics, Elsevier, vol. 70(1), pages 197-215, September.
    6. Benjamin A. Olken & Patrick Barron, 2009. "The Simple Economics of Extortion: Evidence from Trucking in Aceh," Journal of Political Economy, University of Chicago Press, vol. 117(3), pages 417-452, June.
    7. Attila Ambrus & Eric Chaney & Igor Salitskiy, 2011. "Appendix for Pirates of the Mediterranean: An Empirical Investigation of Bargaining with Transaction Costs," Working Papers 11-25, Duke University, Department of Economics.
    8. Christopher Blattman & Edward Miguel, 2009. "Civil War: A Review of 50 Years of Research," Working Papers 166, Center for Global Development.
    9. Anja Shortland, 2011. ""Robin Hook": The Developmental Effects of Somali Piracy," CEDI Discussion Paper Series 11-07, Centre for Economic Development and Institutions(CEDI), Brunel University.
    10. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-384, March.
    11. 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.
    12. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.
    13. Coate, Stephen, 2000. "An Efficiency Approach to the Evaluation of Policy Changes," Economic Journal, Royal Economic Society, vol. 110(463), pages 437-455, April.
    14. Jushan Bai, 1997. "Estimation Of A Change Point In Multiple Regression Models," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 551-563, November.
    15. Jushan Bai & Pierre Perron, 1998. "Estimating and Testing Linear Models with Multiple Structural Changes," Econometrica, Econometric Society, vol. 66(1), pages 47-78, January.
    16. Mirza, Daniel & Verdier, Thierry, 2008. "International trade, security and transnational terrorism: Theory and a survey of empirics," Journal of Comparative Economics, Elsevier, vol. 36(2), pages 179-194, June.
    17. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Journal of Economic Literature, American Economic Association, vol. 42(3), pages 691-751, September.
    18. Hamilton, James D., 1990. "Analysis of time series subject to changes in regime," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 39-70.
    19. Myrto Kalouptsidi, 2014. "Time to Build and Fluctuations in Bulk Shipping," American Economic Review, American Economic Association, vol. 104(2), pages 564-608, February.
    20. Alberto Behar & Anthony J. Venables, 2011. "Transport Costs and International Trade," Chapters, in: André de Palma & Robin Lindsey & Emile Quinet & Roger Vickerman (ed.), A Handbook of Transport Economics, chapter 5, Edward Elgar Publishing.
    21. Christopher Blattman, 2009. "Civil War: A Review of Fifty Years of Research," Working Papers id:2231, eSocialSciences.
    22. Maarten J. Voors & Eleonora E. M. Nillesen & Philip Verwimp & Erwin H. Bulte & Robert Lensink & Daan P. Van Soest, 2012. "Violent Conflict and Behavior: A Field Experiment in Burundi," American Economic Review, American Economic Association, vol. 102(2), pages 941-964, April.
    23. Jushan Bai & Pierre Perron, 2003. "Computation and analysis of multiple structural change models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 1-22.
    24. André de Palma & Robin Lindsey & Emile Quinet & Roger Vickerman (ed.), 2011. "A Handbook of Transport Economics," Books, Edward Elgar Publishing, number 12679.
    25. Jayadev, Arjun & Bowles, Samuel, 2006. "Guard labor," Journal of Development Economics, Elsevier, vol. 79(2), pages 328-348, April.
    26. Stephen Knack & Philip Keefer, 1995. "Institutions And Economic Performance: Cross‐Country Tests Using Alternative Institutional Measures," Economics and Politics, Wiley Blackwell, vol. 7(3), pages 207-227, November.
    27. David Hummels, 2007. "Transportation Costs and International Trade in the Second Era of Globalization," Journal of Economic Perspectives, American Economic Association, vol. 21(3), pages 131-154, Summer.
    28. Knack, Stephen & Keefer, Philip, 1995. "Institutions and Economic Performance: Cross-Country Tests Using Alternative Institutional Indicators," MPRA Paper 23118, University Library of Munich, Germany.
    29. Christopher Blattman & Edward Miguel, 2010. "Civil War," Journal of Economic Literature, American Economic Association, vol. 48(1), pages 3-57, March.
    30. Lars-Erik Cederman & Halvard Buhaug & Jan Ketil Rød, 2009. "Ethno-Nationalist Dyads and Civil War," Journal of Conflict Resolution, Peace Science Society (International), vol. 53(4), pages 496-525, August.
    31. Donaldson, Dave, 2010. "Railroads of the Raj: estimating the impact of transportation infrastructure," LSE Research Online Documents on Economics 38368, London School of Economics and Political Science, LSE Library.
    32. Dave Donaldson, 2010. "Railroads of the Raj: Estimating the Impact of Transportation Infrastructure," NBER Working Papers 16487, National Bureau of Economic Research, Inc.
    33. Attila Ambrus & Eric Chaney & Igor Salitskiy, 2011. "Pirates of the Mediterranean: An Empirical Investigation of Bargaining with Transaction Costs," Working Papers 11-24, Duke University, Department of Economics.
    34. Toke S. Aidt, 2003. "Economic analysis of corruption: a survey," Economic Journal, Royal Economic Society, vol. 113(491), pages 632-652, November.
    35. Douglass C. North, 1968. "Sources of Productivity Change in Ocean Shipping, 1600-1850," Journal of Political Economy, University of Chicago Press, vol. 76(5), pages 953-953.
    36. 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, vol. 100(3), pages 561-580, June.
    37. Olson, Mancur, 1993. "Dictatorship, Democracy, and Development," American Political Science Review, Cambridge University Press, vol. 87(3), pages 567-576, September.
    38. Paolo Mauro, 1995. "Corruption and Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(3), pages 681-712.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Timothy Besley & Hannes Mueller, 2018. "Predation, Protection, and Productivity: A Firm-Level Perspective," American Economic Journal: Macroeconomics, American Economic Association, vol. 10(2), pages 184-221, April.
    2. Gregory DeAngelo & Taylor Leland Smith, 2020. "Private security, maritime piracy and the provision of international public safety," Journal of Risk and Uncertainty, Springer, vol. 60(1), pages 77-97, February.
    3. Alfredo Burlando & Anca D. Cristea & Logan M. Lee, 2015. "The Trade Consequences of Maritime Insecurity: Evidence from Somali Piracy," Review of International Economics, Wiley Blackwell, vol. 23(3), pages 525-557, August.
    4. Fetzer, Thiemo, 2023. "Did the policy response to the energy crisis cause crime? Evidence from England," The Warwick Economics Research Paper Series (TWERPS) 1459, University of Warwick, Department of Economics.
    5. Attila Ambrus & Eric Chaney & Igor Salitskiy, 2018. "Pirates of the Mediterranean: An empirical investigation of bargaining with asymmetric information," Quantitative Economics, Econometric Society, vol. 9(1), pages 217-246, March.
    6. Thiemo Fetzer, 2014. "Can Workfare Programs Moderate Violence? Evidence from India," STICERD - Economic Organisation and Public Policy Discussion Papers Series 053, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    7. Hale Utar, 2018. "Firms and Labor in Times of Violence: Evidence from the Mexican Drug War," CESifo Working Paper Series 7345, CESifo.
    8. Douglas A. Irwin, 2020. "Adam Smith's “tolerable administration of justice” and the Wealth of Nations," Scottish Journal of Political Economy, Scottish Economic Society, vol. 67(3), pages 231-247, July.
    9. Jiang, Meizhi & Lu, Jing, 2020. "The analysis of maritime piracy occurred in Southeast Asia by using Bayesian network," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 139(C).
    10. Shortland Anja, 2015. "Can We Stop Talking about Somali Piracy Now? A Personal Review of Somali Piracy Studies," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 21(4), pages 419-431, December.
    11. Belasen, Ariel R. & Kutan, Ali M. & Belasen, Alan T., 2017. "The impact of unsuccessful pirate attacks on financial markets: Evidence in support of Leeson's reputation-building theory," Economic Modelling, Elsevier, vol. 60(C), pages 344-351.
    12. Timothy Besley & Thiemo Fetzer & Hannes Mueller, 2023. "How Big Is the Media Multiplier? Evidence from Dyadic News Data," CESifo Working Paper Series 10619, CESifo.
    13. Hannes Mueller, 2016. "Growth and Violence: Argument for a Per Capita Measure of Civil War," Economica, London School of Economics and Political Science, vol. 83(331), pages 473-497, July.
    14. Kenneth S. Chan & Jean‐Pierre Laffargue, 2020. "Is piracy sustainable?," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 53(1), pages 321-340, February.
    15. Dominic Rohner & Mathias Thoenig, 2021. "The Elusive Peace Dividend of Development Policy: From War Traps to Macro Complementarities," Annual Review of Economics, Annual Reviews, vol. 13(1), pages 111-131, August.
    16. Avidit Acharya & Robin Harding & J. Andrew Harris, 2020. "Security in the absence of a state: Traditional authority, livestock trading, and maritime piracy in northern Somalia," Journal of Theoretical Politics, , vol. 32(4), pages 497-537, October.
    17. Besley, Timothy & Fetzer, Thiemo & Mueller, Hannes, 2019. "Terror and Tourism: The Economic Consequences of Media Coverage," CAGE Online Working Paper Series 449, Competitive Advantage in the Global Economy (CAGE).
    18. Shepard, Jun U. & Pratson, Lincoln F., 2020. "Maritime piracy in the Strait of Hormuz and implications of energy export security," Energy Policy, Elsevier, vol. 140(C).
    19. Uzoma Iloanugo & Indranil Dutta & M. Emranul Haque, 2020. "Do Amnesty Policies Reduce Conflict? Evidence from the Niger-Delta Amnesty Program," Economics Discussion Paper Series 2011, Economics, The University of Manchester.
    20. Thiemo Fetzer, 2014. "Can Workfare Programs Moderate Violence? Evidence from India," STICERD - Economic Organisation and Public Policy Discussion Papers Series 53, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    21. Jean-Francois Maystadt & Olivier Ecker & Athur Mabiso, 2013. "Extreme Weather and Civil War in Somalia: Does Drought Fuel Conflict through Livestock Price Shocks?," LICOS Discussion Papers 32613, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
    22. Paul H. Jung & Jean-Claude Thill & Luis Armando Galvis-Aponte, 2021. "State Failure, Violence, and Trade: Dangerous Trade Routes in Colombia," Documentos de trabajo sobre Economía Regional y Urbana 303, Banco de la Republica de Colombia.
    23. Dyer, Julian, 2023. "The fruits (and vegetables) of crime: Protection from theft and agricultural development," Journal of Development Economics, Elsevier, vol. 163(C).
    24. Martínez, Luis R., 2017. "Transnational insurgents: Evidence from Colombia's FARC at the border with Chávez's Venezuela," Journal of Development Economics, Elsevier, vol. 126(C), pages 138-153.
    25. Anke Hoeffler, 2017. "What are the costs of violence?," Politics, Philosophy & Economics, , vol. 16(4), pages 422-445, November.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Tim Besley & Thiemo Fetzer & Hannes Mueller, 2012. "One Kind of Lawlessness: Estimating the Welfare Cost of Somali Piracy," UFAE and IAE Working Papers 898.12, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    2. Guillaume Daudin & Jérôme Héricourt & Lise Patureau, 2022. "International transport costs: new findings from modeling additive costs [Inventories, lumpy trade, and large devaluations]," Journal of Economic Geography, Oxford University Press, vol. 22(5), pages 989-1044.
    3. Timothy Besley & Torsten Persson, 2011. "Pillars of Prosperity: The Political Economics of Development Clusters," Economics Books, Princeton University Press, edition 1, number 9624.
    4. Natkhov, T. & Polishchuk, L., 2017. "Political Economy of Institutions and Development: The Importance of Being Inclusive. Reflection on "Why Nations Fail" by D. Acemoglu and J. Robinson. Part I. Institutions and Economic Devel," Journal of the New Economic Association, New Economic Association, vol. 34(2), pages 12-38.
    5. Mendoza, Ronald U. & Canare, Tristan A. & Ang, Alvin, 2015. "Doing Business: A Review of Literature and Its Role in APEC 2015," Research Paper Series DP 2015-37, Philippine Institute for Development Studies.
    6. Del Rosal Fernández, Ignacio, 2013. "Las condiciones de entrega en el comercio exterior español /Terms of Delivery in the Spanish International Trade," Estudios de Economia Aplicada, Estudios de Economia Aplicada, vol. 31, pages 249(24)-249, Enero.
    7. Ang, Alvin & Mendoza, Ronald U. & Canare, Tristan A., 2015. "Doing Business: A Review of Literature and Its Role in APEC 2015," Discussion Papers DP 2015-37, Philippine Institute for Development Studies.
    8. Patricia Sourdin & Richard Pomfret, 2012. "Trade Facilitation," Books, Edward Elgar Publishing, number 14596.
    9. Andrea Asoni, 2008. "Protection Of Property Rights And Growth As Political Equilibria," Journal of Economic Surveys, Wiley Blackwell, vol. 22(5), pages 953-987, December.
    10. Miren Lafourcade & Jacques-François Thisse, 2011. "New Economic Geography: The Role of Transport Costs," Chapters, in: André de Palma & Robin Lindsey & Emile Quinet & Roger Vickerman (ed.), A Handbook of Transport Economics, chapter 4, Edward Elgar Publishing.
    11. Pedro Albarran & Raquel Carrasco & Adelheid Holl, 2013. "Domestic transport infrastructure and firms’ export market participation," Small Business Economics, Springer, vol. 40(4), pages 879-898, May.
    12. Mauricio Cárdenas, 2007. "Economic Growth in Colombia : a reversal of "fortune"?," Revista ESPE - Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 25(53), pages 220-259, January.
    13. Pierre-Guillaume Méon & Khalid Sekkat, 2016. "A time to throw stones, a time to reap: How long does it take for democratic transitions to improve institutional outcomes?," Working Papers CEB 16-016, ULB -- Universite Libre de Bruxelles.
    14. David Castells-Quintana & Maria del Pilar Lopez-Uribe & Tom McDermott, 2015. "Climate change and the geographical and institutional drivers of economic development," GRI Working Papers 198, Grantham Research Institute on Climate Change and the Environment.
    15. Thiemo Fetzer, 2014. "Can Workfare Programs Moderate Violence? Evidence from India," STICERD - Economic Organisation and Public Policy Discussion Papers Series 53, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    16. Lopez-Uribe, Maria del Pilar & Castells-Quintana, David & McDermott, Thomas K. J., 2017. "Geography, institutions and development: a review ofthe long-run impacts of climate change," LSE Research Online Documents on Economics 65147, London School of Economics and Political Science, LSE Library.
    17. Felbermayr, Gabriel J. & Tarasov, Alexander, 2022. "Trade and the spatial distribution of transport infrastructure," Journal of Urban Economics, Elsevier, vol. 130(C).
    18. Dalila Chenaf-Nicet, 2020. "Dynamics of Structural Change in a Globalized World: What Is the Role Played by Institutions in the Case of Sub-Saharan African Countries?," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 32(4), pages 998-1037, September.
    19. Aney, Madhav S. & Ko, Giovanni, 2015. "Expropriation risk and competition within the military," European Journal of Political Economy, Elsevier, vol. 39(C), pages 125-149.
    20. Gilles Duranton & Peter M. Morrow & Matthew A. Turner, 2014. "Roads and Trade: Evidence from the US," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 81(2), pages 681-724.

    More about this item

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ehl:lserod:66041. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: LSERO Manager (email available below). General contact details of provider: https://edirc.repec.org/data/lsepsuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.