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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.

Suggested Citation

  • 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).
  • Handle: RePEc:aub:autbar:898.12
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    References listed on IDEAS

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    1. 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.
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    6. Alberto Behar & Anthony J. Venables, 2011. "Transport Costs and International Trade," Chapters,in: A Handbook of Transport Economics, chapter 5 Edward Elgar Publishing.
    7. Inmaculada Martínez-Zarzoso & Sami Bensassi, 2013. "The Price Of Modern Maritime Piracy," Defence and Peace Economics, Taylor & Francis Journals, vol. 24(5), pages 397-418, October.
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    12. 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.
    13. 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.
    14. 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.
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    16. Peter T. Leeson, 2007. "An-arrgh-chy: The Law and Economics of Pirate Organization," Journal of Political Economy, University of Chicago Press, vol. 115(6), pages 1049-1094, December.
    17. Dave Donaldson, 2010. "Railroads of the Raj: Estimating the Impact of Transportation Infrastructure," NBER Working Papers 16487, National Bureau of Economic Research, Inc.
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    1. Pirates paper of the day
      by UDADISI in UDADISI on 2012-05-12 00:38:00

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    Cited by:

    1. Flückiger, Matthias & Ludwig, Markus, 2015. "Economic shocks in the fisheries sector and maritime piracy," Journal of Development Economics, Elsevier, vol. 114(C), pages 107-125.
    2. 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.
    3. Anja Shortland & Federico Varese, 2012. "The Business of Pirate Protection," Economics of Security Working Paper Series 75, DIW Berlin, German Institute for Economic Research.

    More about this item

    Keywords

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

    JEL classification:

    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • F1 - International Economics - - Trade
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions

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