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The Welfare Cost Of Lawlessness: Evidence From Somali Piracy

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  • Timothy Besley
  • Thiemo Fetzer
  • Hannes Mueller

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

  • Timothy Besley & Thiemo Fetzer & Hannes Mueller, 2015. "The Welfare Cost Of Lawlessness: Evidence From Somali Piracy," Journal of the European Economic Association, European Economic Association, vol. 13(2), pages 203-239, April.
  • Handle: RePEc:bla:jeurec:v:13:y:2015:i:2:p:203-239
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    File URL: http://hdl.handle.net/10.1111/jeea.12114
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    Citations

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    Cited by:

    1. 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.
    2. repec:aea:aejmac:v:10:y:2018:i:2:p:184-221 is not listed on IDEAS
    3. 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.
    4. 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.
    5. 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.
    6. 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.
    7. 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.
    8. 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.
    9. 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.

    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

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