The Quest and Wanted Posters In Baargaal
This post was co-authored with my friend and colleague Lt. Patrick Larsen. Pat is a graduate of the United States Air Force Academy and a graduate student at the University of Chicago. He is an officer and helicopter pilot in the United States Navy and has flown pirate-hunting missions off the Somali coast.
This blog post sadly comes in the wake of the execution of Jean and Scott Adam, Phyllis MacKay, and Bob Riggle aboard the yacht The Quest, a 58-foot civilian vessel taken near the coast of Oman. It proposes a law-and-economics solution to the problem of piracy.
Piracy, whether musical, maritime, or pharmaceutical in nature, is an unusual crime in that its implications for victims can be calculated with a high degree of economic precision, unlike rape or murder. Unlike drugs dealing or the illicit trade in organs, the externalities of piracy, while not bounded in the strict sense, are comparatively quite limited. In other words, an act of piracy is a measurable, discrete event that can be quickly reduced to its underlying economic pieces. Taking these economic pieces apart and reassembling them in a new constellation of thought, one can deduce roughly how much a pirate’s life is worth in economic terms and whether a bounty contract to remove a pirate at this price would be a valuable tool to investors harmed by pirates. These bounty contracts to remove pirates are not only an interesting Posnerian thought experiment in economics, but a potentially-viable solution to at least one type of piracy.
If one thinks of the kingdom of crime and the phylum of piracy, this category must then further subdivide into two classes: events where the pirates prevent upstream agents from receiving rents they would otherwise receive (e.g. software piracy, pharmaceutical piracy) and cases where pirates injure both upstream and downstream agents by depriving them of goods, services, and supply chain reliability (e.g. maritime piracy).
Hence, in a world where investors hold equal shares in the shipping to be protected, an investor should be willing to pay for a services contract at price X for each pirate removed, where X represents the present value of the sum of all foreseeable realized losses divided among the number of pirates at any given time. To get a sense of X’s order of magnitude, the United Nations estimates the cost of piracy at around 7BUSD. Even if there were one million pirates in Puntland (and there aren’t), that’s thousands of dollars per pirate. While it is true that, due to the rising marginal cost of enforcement, piracy would not be completely eliminated, the rate of piracy would fall to some nominal equilibrium level which commercial counterparties can endure as an inconvenience (the authors assert the nine ships taken by pirates last month is likely well above this sustainable, endurable level).
Some may read this piece and conclude that an open service contract market for removing pirates is little more than a “market solution” neoliberal hypothetical proposed unsurprisingly by two authors with ties to the University of Chicago. However, the building blocks of this market exist already. A Russian company already offered a Somali cruise package, the marketing centering on the concept that the client will have a chance to shoot pirates. Many countries, including the United States, allow bounty hunters to operate within their boundaries as a regulated, privatized law enforcement industry. The U.S. and Iraqi governments already operate an anonymous tips-by-text line to offer both information and bounties in Iraq. The prevalence of well-organized, properly-equipped mercenary forces contributes to the likelihood that an efficient market in pirate removal would quickly evolve. It hardly matters whether the bounty contracts themselves are funded by governments, the shipping industry, or corporations with substantial Indian Ocean supply chain dependency – the effect is similar, and a series of cartel arrangements would likely allow the benefactors to efficiently partition the costs.
Whether one agrees or disagrees with the concept of private bounties on pirates, the use of an armada of international air, intelligence, naval, and special warfare assets to address the piracy issue is one of the least-efficient approaches imaginable. The military assets floating on the western edge of the Indian Ocean today are the military resource-utilization equivalent of a Marcosian shoe collection. Dispatching a warship from South Korea to deal with a group of people on the other side of the world weeks after they’ve already stolen a tanker is more than economically-inefficient, it’s logistically nonsensical. As Colonel Richard Spencer told The Economist recently, “The military resource is finite and only treats the symptoms.”
Scholars, policymakers, and diplomats should consider nontraditional solutions, particularly where economic incentives are well-aligned among non-state actors. The incentives of the shipping industry and those of mercenaries who hunt pirates under the service contracts described here are far better-aligned than the nebulous interests of everyone who uses the ocean compared with the complex and overlapping missions assigned to NATO member nation assets. Much as the X Prize and other “big prize” efforts have proven innovative ways to incentivize difficult activities, we argue a high number of small prizes can have desirable effects and, perhaps, even solve the most stubborn problems.
