Posted by Peter Leeson, guest-blogging: The Market Has Spoken http://volokh.com/archives/archive_2009_05_17-2009_05_23.shtml#1242735020
Despite the surge in Somali piracy and encouragement from some employees of the U.S. government, commercial ships aren�t choosing to put armed guards on their vessels. And with good reason: given present conditions, anyway, it�s a bad idea. As I discuss in [1]The Invisible Hook, like their Caribbean forefathers, Somali pirates are in the business of making money, not harming hostages. Of the 815 hostages Somali pirates took last year, only four died and two were injured under pirate care. Pirates aren�t treating hostages well because they�re nice guys. They�re treating hostages well because it pays to do so. A dead hostage fetches no ransom and pirates� business model would collapse if they injured prisoners or allowed them to die. The economics of piracy has a simple bottom line: for all the problems piracy may pose, the threat of dead and injured innocents isn�t one of them. That could change, however, if commercial ships starting carrying armed guards on their ships. Armed guards will of course defend against pirate attacks, potentially leading to fire fights that could jeopardize innocent sailors� lives. The prospect of having to battle for their prizes will deter some pirates. But others will remain undeterred. And for the remaining industry, armed guards� effect may very well be to increase the dangers that piracy poses rather than reducing them. The profit-driven behavior of commercial shippers corroborates this possibility. Like pirates, commercial shippers also have strong incentives to keep merchant sailors alive and well: insurance costs. If armed guards reduced the dangers of piracy instead of increasing them, commercial shippers� insurance costs would fall by employing guards instead of rising. But in this case commercial shippers would have hired armed guards already, which they haven�t. Commercial shippers don�t need government to encourage them to undertake the most profitable course of action. The market has spoken: Even in today�s pirate-infested waters off Somalia, the low probability of being captured by pirates, together with the fact that pirates release their hostages unscathed, means it�s cheaper--and safer--to go without armed guards. References 1. http://www.amazon.com/exec/obidos/ASIN/0691137471/npr-5-20
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