Saturday, January 23, 2010

Contract Enforcjement in Non-State Situations

The blog, A World View, speculates that the current reported violence amongst Somali pirates, which has apparently resulted from a dispute over who gets ransom proceeds, may undermine the pirates' recently emerging stock exchange:

The pirate stock exchange basically runs on the honor system – investors give pirates money and equipment with the understanding that they will receive a portion of the prize should the pirates successfully capture and ransom a ship. But if the pirates refuse to share the wealth, the whole system falls apart. And with essentially no functioning government in that portion of Somalia, the Puntland pirates and Haradheere locals will have to sort this dispute out themselves.

One role that mafias have played is to enforce such contracts when courts will not or cannot. Eg, regarding the mafia in Italy:
He essentially advances an economic theory of the mafia: they are entrepreneurs and firms who collude and compete; the good they sell is not violence, or stolen property, but protection. That is, they enforce contracts in places the government can't or won't, like illegal and illicit markets, or areas where the police and courts are weak. They actively compete with the police to provide protection, and this good is in high demand. Every transaction done under the table cannot seek protection from the courts, and the mafia step naturally into this gap.

Which suggests, in turn, that the pirates will evolve such a mafia.

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