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An Economic Model of Maritime Piracy: Part 1, Pirates and Shippers

In: Maritime Piracy and Its Control: An Economic Analysis

Author

Listed:
  • C. Paul Hallwood

    (University of Connecticut)

  • Thomas J. Miceli

    (University of Connecticut)

Abstract

This chapter develops an economic model that examines the behavior of pirates and their potential victims (shippers) in the presence of a fixed enforcement policy. In other words, taking the expected sanction as given, we derive the optimal effort of pirates to locate and attack potential targets and of targets to avoid contact and attack. We then examine how exogenous changes in the expected sanction affect the equilibrium level of offensive efforts by pirates and defensive efforts by shippers. The results show that greater third-party enforcement will generally reduce pirate effort but will also tend to ‘crowd out’ defensive efforts by shippers. In this sense, public enforcement and self-enforcement are substitutes. An alternative response to piracy by shippers when confiscation of cargo is the risk is to adjust the cargo to make it unattractive to pirates. We show that, in contrast to self-defense, this type of ‘self-insurance’ by shippers is complementary to third-party enforcement.

Suggested Citation

  • C. Paul Hallwood & Thomas J. Miceli, 2015. "An Economic Model of Maritime Piracy: Part 1, Pirates and Shippers," Palgrave Macmillan Books, in: Maritime Piracy and Its Control: An Economic Analysis, chapter 4, pages 30-46, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-137-46150-6_4
    DOI: 10.1057/9781137461506_4
    as

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