Profits, Pirates and Externalities

18 May, 2009

The government in Somalia blames payment of ransom for the explosion in piracy there, according to the BBC. Although this is obviously ignoring the root of the problem, it raises the interesting question of whether outlawing payment could eliminate the threat in the future.

Clearly, if it was in the interests of shipping firms to do so, they would already have agreed to it privately. That’s all that matters, if they’re the only victims. Recent developments have shifted the balance in this debate, as there is a question over whether these pirates are financing Al-Shabaab, the Islamic group that opposes the Somalian government. The importance of this question has intensified as more lives are lost.

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