The Economics of Kidnapping

May 17, 2012 in Daily Bulletin

Megan McArdle applied economic theory to kidnapping and came up with the following conclusions:

  • Hostage negotiations are ‘bilateral monopoly price negotiations.’ There is just one seller (the kidnapper) and one buyer (the hostage’s loved ones.)
  • In such a market two things determine price: willingness to accept failure and capacity to pay.
  • The party that is more willing to accept failure – that is an inability to mutually agree upon the worth of the hostage – has more bargaining power.
  • Those who are able to pay more have less bargaining power. This is likely why Filipinos are significantly cheaper to ransom than Europeans.
  • What shouldn’t matter is the established ‘market-price’ for a hostage. In such a situation there is no established market – there is just a series of one-off transactions.

To read more about deviations from this model, what this has to say about economics as a whole, how this relates to Somali pirates, and the mistake that both Caesar and his kidnappers made, click here.

Source: The Atlantic