Economics for Pirates

In the recent weeks, Somali pirates, operating off the East African coast have been in the public limelight for taking over not only a large oil tanker destined for the US but also for the successful negotiations for ransom for a number of ships in their control.

Needless to state, perceptive economists such as Peter Leeson in this interview in the Scientific American magazine, not only see similarities between these pirates and the pirates of yore but also state categorically that piracy is a form of employment. One ought not to be surprised therefore that the total number of piracy incidents on the east coast of Africa have risen this year as the pirates have been able to extract ransom from the owners of the ships that they have held. This interview published in the Scientific American Magazine uses economic theory appearing in a book to explain the facts that obtain.

Taking just two examples from the dozens of ships that have been taken over by these buccaneers, one involved a Ukrainian ship carrying tanks and other heavy weapons as reported by NYT here and the other was the oil tanker carrying nearly a million barrels of crude petroleum. As economic theory would predict, the activity is based on expectations of profit even when it is clear that the pirates can neither offload the battle tanks reportedly held in the former ship nor refine the crude petroleum held in the latter. All they understand is that the ship has valued property whose release the owners will be anxious to negotiate for.

Now that the book by Peter Leeson is out, I expect that law enforcers and cargo shippers will read it carefully. perhaps the best day for sea pirates on the East african coast are now because they will ultimately face the same fate as their predecessors three centuries ago.