Freakonomics of Maritime Piracy

Abstract

People respond to incentives, which are the cornerstone of modern life. In his best-selling book Freakonomics, economist Steven Levitt suggests that if we strip away a layer or two from contemporary society, we can expose what is happening underneath and examine the incentive structures that shape the social order. On a host of issues, from the behavior of school teachers to sumo wrestlers, to the demise of the Ku Klux Klan, Levitt demonstrates how the conventional wisdom is often wrong. Levitt calls this the “hidden side of everything.” Incentives are often at the center of explaining what is really going on. Freakonomics is simply economics portrayed in a way that encourages us to think about how people respond to inducements. In a variety of open as well as illicit markets, human conduct is shaped by economic incentives that may be monetized.In the maritime domain, we can think about incentives to harvest some fresh and rather interesting observations that illuminate how markets - both traditional, but distorted (such as Somali pirates entering the high-end real estate market in Kenya), and non-traditional, but efficient (such as the wage rates for those Somali pirates) - affect shippers, carriers, and seafarers engaged in the business of international shipping. Leveraging Levitt’s non-traditional approach to economics gives rise to several underappreciated - sometimes even “freakish” - dimensions of maritime piracy and its relationship with international shipping. First, this article looks briefly at the shipping industry and the economics of the “Great Recession” of merchant carriers. From boom to bust, the effects of economic swings are more acute for the merchant shipping industry than they are for other sectors of the economy. The article then examines the political economy of Somali piracy, and how the danger to shipping in the Gulf of Aden and the western Indian Ocean is affecting the shipping industry, the tribal society of the semi-autonomous Puntland region of Somalia, and neighboring Kenya.

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