You may have seen the movie “Captain Phillips” about the hijacking of a shipping container off the coast off Somalia by pirates. Recent research by Anja Shortland and Federico Varese mapped the locations of hijacked ships between 2005 and 2012 and found that:
1. Hijacked vessels were always anchored far away from regional trading routes
2. Big ports were not prone to piracy.
The rationale for this is that Somali clans directly influence local trade by issuing licences and also imposing informal taxes on imports and exports. Clans refuse to protect pirates because the income they get from trade is safer and more lucrative that those they can get from pirates. Clans that have little dealings in formal trade tend to offer protection to pirates in order to get a share of their spoils.
This was evident during the ban on Somali livestock imports imposed by Saudi Arabia between 2000 and 2009. With most Somalis being farmers and Saudi Arabia being their main export destination they were hit hard. Therefore in order to secure income the farmers in the coastal regions offered protection to pirates. However once the embargo was lifted and income once again flowed in from trade. Subsequently pirates found it much harder escaping arrest.
Hijack and re-hijack dilemma
The same authors looked at the hijack and re-hijack dilemma.
Consider two groups of pirates. Each group has one ship to ransom, but can in addition re-hijack the other group’s ship and negotiate a further ransom. The optimal outcome is achieved if both commit to not hijacking each others’ ship. This lowers protection costs and raises the confidence of ship-owners that the ransom payment will release the ship immediately. If players engage in re-hijacking, protection costs rise and the ship-owners would reduce the ransom to make provisions for an additional ransom and a longer loss of hire. However, each group has an incentive to re-hijack the ship from the other group to share in this (reduced) ransom. Mutual re-hijacking would therefore be the dominant strategy in the game illustrated below: with finite time horizons, the co-operative outcome would need to be enforced.