How to stop piracy (assuming that Tim Geithner is no longer Treasury Secretary)

If you want to increase a behavior, you reward it.

If you want to decrease a behavior, you punish it in an unexciting way.

“Unexciting” is important here. Exciting situations can be their own reward, and thus actually increase the behavior you think you are punishing.

Currently, insurance companies reward pirates, and punish crews that want to protect themselves from pirates.

Insurance companies reward pirates by paying ransom. When a pirate receives ransom, he and all his friend know a way to get more money: take more ships hostage.

Insurance companires punish crews who try to defend themselves. Premiums go up if ships are armed, and therefore shipping companies that try to protect themselves from pirates face higher premiums. This is exactly the sort of unemotional punishment that reduces the frequency of a behavior.
pirate_party

This should be turned around.

Insurance companies that pay ransom to hostages should be punished in an unemotional way. Insurance companies that pay ransom should be open to litigation by all future victims of pirates. This would also reduce the reward pirates receive for taking ships.

Pirates should not be allowed to keep hostages. Whether they are rescued, killed in attempts to rescue, killed in attempts to arrest the pirates, or killed in attempts to kill the pirates do not really matter. The important thing, from a systematic perspective, is preventing pirates from receiving a reward from piracy.

Unfortunately, the benefits of this policy will be limited as long as Tim Geithner is Treasury Secretary.
paul_bernake_geithner

Under Geithner, the only way a politically powerful company loses money is by not having enough friends in Washington. Likewise, the best way for a politically powerful company to make money is by having friends in Washington. Therefore, Lehman Brothers (which did not have friends, and suffered a bad quarter) went bankrupt, while Citi (which has friends, and suffered a bad quarter) got billions in TARP aid, and Goldman Sachs (which perhaps has more friends than anyone) got a $15 billion, no-strings-attached, no-repayment needed check.

As long as Geithner is Treasury Secretary, insurance companies would be foolish for looking at the actual profit-and-loss actions of their consequences. Far more important, under Geithner’s watch, is doing the politically popular thing.

Tim Geithner is so bad at his job, that he is a national security threat… when it comes to pirates, at least.

12 thoughts on “How to stop piracy (assuming that Tim Geithner is no longer Treasury Secretary)”

  1. “If you have been following a respectable media source, like this blog”? Come on Dan… at least most respectable media sources run spell check on their articles before clicking post/print!

    “can be there own reward”

    “Far mroe important”

  2. A few spelling errors are irrelevant as long as the message makes it point, which it does.

    Where was that first quote from? If you said that tdaxp, I hope it was light joke 😉

  3. The idea of unexciting bad consequences for undesired behavior is a really important concept.

    One of the things that brought down Lehman Brothers was naked short selling. This wasn’t just a technical violation type naked short selling where somebody does not own a stock when he sells it and doesn’t borrow it before the short sale either. These were naked short sales where the stock was not delivered within three days as the law requires. Apparently there were millions of shares of Lehman Brothers stock that was sold but not delivered. This is essentially counterfeiting of the stock.

    My modest proposal would be to arrange the law to allow anyone who does not receive their stock within the three day delivery period to be entitled to triple damages in the form or three shares of stock for each share of stock that they purchased. Not only will that impose pain for naked short selling, it will make stock shorting raids more difficult by creating extra demand for the target company’s stock. It would also create a niche for a kind of “vampire hunter” who would specialize in buying stock from short sellers who were more likely to be on the hook for triple damages.

  4. Dan,

    Insurers are required to pay out under certain policies (hull, marine, etc. or even specific policies for protection against hijacking). On what basis wd you punish them ? Incidentially, they wd be open to litigation if they refuse to pay out.
    In certain countries it is or was illegal to pay ransom to hostage takers / kidnappers. It is up to a countries legislature to decide on that.
    All in all,not the level of analysis I am used to seeing on this blog.

  5. F.M.C.,

    Sorry the post did not meet your standards! Hopefully, this clarification will:

    I am proposing modifying the Foreign Corrupt Practices Act [1], either the law itself or the regulations that implement it, to prevent insurance companies from paying ransoms. Companies cannot be sued for refusing to perform illicit contracts, so (at least within US jurisdiction) the insurance companies would be on the side of the angels to refuse to pay ransom, even on already issued ransom insurance policies. Likewise, in the tradition of private Attorneys general, private parties would be incentivized to sue insurance companeis if (a) the insurance companies paid ransom in violation of the FCPA and (b) individuals associated with the claimant had been taken hostage by pirates.

    I assume you are objecting that to work, such an American law would have to in effect regulate insurance companies headquartered in Liberia (say) which insure Liberian flagged vessels. However, Helms-Burton and other acts of congress already influence such third-country matters.

    Mark in Texas,

    I don’t know the details of naked short selling, but I think we both agree that the legal framework for speculators badly errored ont the side of their liberty!

    Glenn,

    The “respectable media source” line referred to this blog being months ahead of that great partisan newsletter, The New York Times. [4]

    Brendan,

    Juding by our off-line conversations, perhaps you would enjoy promoting Mark Levin in the open thread? 😉 [5]

    [1] http://en.wikipedia.org/wiki/Foreign_Corrupt_Practices_Act
    [2] http://en.wikipedia.org/wiki/Private_attorney_general
    [3] http://en.wikipedia.org/wiki/Helms-Burton_Act
    [4] http://www.tdaxp.com/archive/2009/04/10/the-american-real-estate-market.html
    [5] http://www.tdaxp.com/archive/2009/01/01/open-thread-xvii.html

  6. Dan,

    That is more like it ;-). Whether this is a sensible thing to do is a complex question. Now, if I remember this correctly, Italy had no – payout law in the 80s which was viewed critically at the time. I do not what its actual status is. At the time, it resulted in the cops doing surveillance of victims` families instead of searching for the hijackers.

    US insurers wd be off the hook once payout is illegal. Naturally they wd lose the hijack insurance market and lose market share in other areas. For a company in the US hijack insurance may complement other security measures and make it easier to send qualified personnel abroad.

    Legislating 3rd country matters with no direct or indirect relation to the US sphere of sovereignty is a violation of international law and the sovereignty of the country in question. If the said country is small and weak, it just has to swallow that, if not, it won`t.

    Back to outlawing payouts / not giving in under any circumstances: A no compromise policy was introduced in Germany by chancellor Helmut Schmidt vis a vis the Red Army (RAF) terrorists in Germany. Schmidt even issued written orders for the event being abducted himself: no negotiations. In the end, it worked and I am personally sure it was the only way. Caveat: it works in the early stages of such a problem when the law enforcement effort is well directed and substantial.

    Btw. Schmidt had to stand firm at the time when the RAF hostage H.M. Schleyer was murdered. Worse, he had to go to the man`s funeral and face the family. That is the reality behind the “systemic” perspective. Easier said than done I suppose.

  7. Dude, you are starting to sound like a behaviorist… What have they got you doing over there? 😛 Good to know you are as hard on politicians as you are on researchers!

  8. Insurance companies that pay ransom to hostages should be punished in an unemotional way. Insurance companies that pay ransom should be open to litigation by all future victims of pirates. This would also reduce the reward pirates receive for taking ships.”

    Personally, I would start by disallowing insurance companies from raising insurance premiums for armed ships.

    Let’s also emphasis with the simple human instinct of doing anything to save one’s own ass without regard to the long term consequences. With your proposed idea, one may legitimately argue that such litigation should coincide with also opening up litigation by future victims of pirates that were killed because they didn’t have access to insurance that could have deterred it.

    Not disagreeing with your point pertaining to the incentives of piracy, but may I suggest emphasizing with the insurance holder as well.

  9. F.M.C.,

    Good points all around

    Btw. Schmidt had to stand firm at the time when the RAF hostage H.M. Schleyer was murdered. Worse, he had to go to the man`s funeral and face the family. That is the reality behind the “systemic” perspective. Easier said than done I suppose.

    This made me think of Hannibal Lecter, or Stalin, or any othe other fictional and real monsters who have the empathy to know what other people are feeling and the lack of sympathy not to care.

    Brendan of IHL discusses existing law on piracy. [1] Potentially this could be amended to limit civil liabilities in the event of death or injury at sea, which may also moderate the problem.

    Moon & Rich,

    The link Moon provides fits the behavioraist perspective very rare — learning is a processing of sending constructive or destructive interference to learning curves.

    Next year when I teach, I am going to better integrate behaviorism with social cognition (Albert Bandura, etc.). I think it will make most sense to future educators if they combine both perspectives into S –se–> R (stimulus mediated by self-efficacy generates a response).

    Jeffrey James,

    I agree!

    [1] http://ihatelinux.blogspot.com/2009/04/brendans-brilliant-idea-244700-pirates.html

  10. Moon,

    Thanks for the interest!

    Sadly, the online quiz material is copyrighted… The focus of the course has been changing under my watch to much more focus on classroom behavior (social cognition and behaviorism, mostly), as those are the big problems that teachers run into.

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