Dangerous Waters: The Economic Toll of Piracy on Maritime Shipping

Renato Molina, Juan Carlos Villaseñor-Derbez, Gavin McDonald and Grant McDermott

No 11077, CESifo Working Paper Series from CESifo

Abstract: Maritime transport has been historically susceptible to piracy. While broad assessments suggest the impact of modern piracy causes large economic losses, the literature lacks quantification of the magnitude of the costs and the behavioral responses that underpin them. Here, we combine theory and a unique geospatial dataset combining more than 25 million shipping voyages and thousands of pirate encounters across the globe to find that pirate encounters lead to significant and costly avoidance measures. Shippers modify their path along a route to avoid locations with known pirate encounters. This increases voyage distance and duration, which lead to significant increases in fuel and labor costs estimated to be over US$1.5 billion/year. Additionally, emission of CO2, NOx, and SOx due to increased fuel consumption results in environmental damages valued at US$5.1 billion per year. Together, our results provide the first global estimates linking the presence of pirates to individual behaviour and aggregate transportation cost, as well as its environmental impact, with major implications for the shipping industry and maritime security at a global scale.

Keywords: piracy; shipping; avoidance (search for similar items in EconPapers)
JEL-codes: F50 Q50 R40 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-ene, nep-env, nep-int and nep-tre
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