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Pirate economics.Bargain like a Somali

How to negotiate with pirates in the Horn of Africa

SEIZURES of ships by pirates off the coast of Somalia may be down in recent months, but the interest of social scientists and economists in the country is undiminished. Because the place has been so stateless for so long, it provides a testing ground for theories about how people behave in the absence of meddlesome government. One such question is how two parties bargain when neither has good information available. Negotiations between shipowners and Somali pirates fit that description well.

Economists have been interested in the free-market ways of pirates for a while. Last year a team of three published apaper drawing on data from more than 10,000 negotiations that took place from 1575 to 1739 between North African pirates on one side and monks acting for Spanish families on the other. They found that the Spanish managed to pay lower ransoms by dragging talks out. Data on the activities of present-day pirates in Somalia are more, well, patchy. To fill the gap, the authors of a new paper gathered data from pirate negotiators.

They found that Somali pirates pretend to be more sophisticated than they are, whereas shipowners pretend to be poorer. Nowadays both sides have an interest in a speedy resolution, since a prolonged negotiation incurs costs. For the shipowner, the cargo spoils and the ship goes unused. For the pirates, the captured crew must be fed and the ship guarded. And pirates cannot last long without a resupply ofqat, which is to them as rum is to Captain Jack Sparrow. Settle too quickly, though, and one side or other is likely to get a poor deal.

Government intervention can create perverse incentives. Spain paid a ransom of $1.2m for a fishing boat, the Playa del Bakio, in 2008—more than twice the amount previously paid for a vessel of that type, setting a new floor price. Indeed, although the number of ships taken is down, the pirates have adjusted by charging more per release. There are also signs that they are moving inland, grabbing aid workers and other foreigners far from the guns of the US Navy.

 

THE ECONIMIST.


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