Pirates of the Mediterranean: An empirical investigation of bargaining with asymmetric information

Abstract

We investigate the effect of delay on prices in bargaining situations using a data set containing thousands of captives ransomed from Barbary pirates between 1575 and 1692. Plausibly exogenous variation in the delay in ransoming provides evidence that negotiating delays decreased the size of ransom payments, and that much of the effect stems from the signalling value of strategic delay, in accordance with theoretical predictions. We also structurally estimate a version of the screening type bargaining model, adjusted to our context, and find that the model fits both the observed prices and acceptance probabilities well.

On the Empirical Content of Cheap-Talk Signaling: An Application to Bargaining

“…Our work also contributes to two separate strands of the literature that specifically shed light on bargaining and negotiation. The first of these is a growing literature in Industrial Organization on the empirics of bargaining and negotiation (Ambrus et al, 2014;Bagwell et al, 2014;Grennan, 2013Grennan, , 2014Larsen, 2014;Shelegia and Sherman, 2015). We contribute to this literature by documenting the important role of cheap-talk signaling as a framework for understanding the relationship between "negotiation", i.e.…”

Governing criminal markets: The role of private insurers in kidnap for ransom

“…This can create a kidnap boom-with expensive consequences for insurers. Adjusting criminals' ransom expectations downward requires patient bargaining (Ambrus, Chaney, & Salitskiy, 2015)-with high cost for all involved. In practice, the governance efforts of insurers are therefore focused on minimizing kidnap risk for their customers and paying the minimum ransoms that ensure the safe return of hostages.…”

Governing kidnap for ransom: Lloyd's as a “private regime”

“…If hostages are uninsured and stakeholders unable to afford the kidnappers’ target ransom, they have to wait until the kidnappers adjust their expectations downward (or come under external pressure to release). Poor stakeholders signal their low valuation of the hostage by being patient (Ambrus et al, , p. 2)—even when faced with physical violence to the hostage (e.g., New York Times , ). This signal would not be emulated by rich stakeholders.…”

“…Containing ransom payments is expensive. Offering a high ransom can result in a faster release, reducing negotiation costs and risks for the hostage (Ambrus, Chaney, & Salitskiy, 2014). But high returns to kidnapping may trigger a kidnapping boom and ever-rising ransom demands.…”