The Economics Of Pirate Negotiations

November 24, 2012 in Daily Bulletin

The Economist looked at the economics of pirate negotiations:

  • Government intervention can alter incentives. After Spain paid $1.2 million for a fishing boat, it set a new price floor which every subsequent pirate expected.
  • Both parties are interested in a speedy resolution and ransom payment. The pirates don’t want to spend too many days guarding the boat and feeding the crew. The ship owners don’t want their goods to spoil, or for the ship to remain inactive.
  • During negotiations pirates also pretend to be more sophisticated than they really are, and ship-owners pretend to be poorer in an attempt to strengthen bargaining positions.
  • The number of ships taken by pirates might be declining, but the average value of each ransom payout has increased.

Read more about how things have changed in pirate negotiations since the 1500s and the background of the study over here.

Source: The Economist