Research Seminar: The Welfare Cost of Lawlessness: Evidence from Somali Piracy

Venue: ESRI, Whitaker Square, Sir John Rogerson’s Quay, Dubl

The seminar will be given by Professor Tim Besley, London School of Economics and Political Science (LSE) who will deliver the Geary Lecture at the ESRI later the same day.

This paper estimates the effect of piracy attacks on shipping costs using a unique data set on shipping contracts in the dry bulk market. We look at shipping routes whose shortest path exposes them to piracy attacks and find that the increase in attacks in 2008 lead to around a eight to twelve percent increase in shipping costs. We use this estimate to get a sense of the welfare loss imposed by piracy. Depending on what is included, we estimate that generating around 120 USD million of revenue for pirates in the Somalia area led to a welfare loss of anywhere between 0.9 and 3.3 USD billion. Even at the lower bound, therefore, piracy is an expensive way of making transfers.