One Kind of Lawlessness: Estimating the Welfare Cost of Somali Piracy

Abstract

This paper estimates the e¤ect 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 …nd that the increase in attacks in 2008 lead to around a ten percent increase in shipping costs.We use this estimate to get a sense of the welfare loss imposed by piracy.Our intermediate estimate suggests that the creation of $120 million of revenue for pirates in the Somalia area led to a welfare loss of over $1:5 billion.We thank seminar participants at the LSE(EOPP), DIW and IAE.We thank Richard Neylon for useful advice.Ali Saadatnia and Alessandro Torti provided valuable research

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