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The welfare cost of lawlessness: evidence from Somali piracy

Timothy Besley (), Thiemo Fetzer and Hannes Mueller

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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.

JEL-codes: D23 H11 K42 (search for similar items in EconPapers)
Date: 2015-04
New Economics Papers: this item is included in nep-law and nep-pay
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Published in Journal of the European Economic Association, April, 2015, 13(2), pp. 203-239. ISSN: 1542-4766

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http://eprints.lse.ac.uk/66041/ Open access version. (application/pdf)

Related works:
Journal Article: THE WELFARE COST OF LAWLESSNESS: EVIDENCE FROM SOMALI PIRACY (2015) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:66041

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