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The welfare cost of lawlessness: evidence from Somali piracy

Besley, Timothy and Fetzer, Thiemo and Mueller, Hannes (2015) The welfare cost of lawlessness: evidence from Somali piracy. Journal of the European Economic Association, 13 (2). pp. 203-239. ISSN 1542-4766

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Identification Number: 10.1111/jeea.12114

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.

Item Type: Article
Official URL: http://onlinelibrary.wiley.com/journal/10.1111/(IS...
Additional Information: © 2014 European Economic Association
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HV Social pathology. Social and public welfare. Criminology
JEL classification: D - Microeconomics > D2 - Production and Organizations > D23 - Organizational Behavior; Transaction Costs; Property Rights
H - Public Economics > H1 - Structure and Scope of Government > H11 - Structure, Scope, and Performance of Government
K - Law and Economics > K4 - Legal Procedure, the Legal System, and Illegal Behavior > K42 - Illegal Behavior and the Enforcement of Law
Sets: Departments > Economics
Collections > Economists Online
Date Deposited: 12 Apr 2016 09:06
Last Modified: 31 Oct 2016 00:00
URI: http://eprints.lse.ac.uk/id/eprint/66041

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