Link: http://www.econtalk.org/anja-shortland-on-kidnap/
About Anja: Researcher and author of Kidnap: Inside the Ransom Business
Economist Russ Roberts interviews Anja Shortland
Kidnapping for ransom as a business
The hint that kidnapping was in fact a business: 97% are resolved peacefully
How can the chance of a peaceful resolution be so high if all these things must go right:
- Both sides must negotiate a price from a wide range
- How to payment, typically unmarked cash, to the kidnapper?
- Trust that the kidnapper will acknowledge payment
- The kidnapper to trust they will not be arrested during the hand-off
- The kidnapper must expect that the hostage will not be a witness
“The only reason for this kind of trade to go smoothly is what economists call the shadow of the future. So, people behave well this time ’round because it will help them in their business in future interactions.”
“This will only work if the kidnapper understands that he’s better off keeping the promises than breaking the promises. And that works because there must be a mechanism for information about good and bad behavior to be transmitted to future victims. So, if you have a kidnapping gang working in a city, then local gossip will probably ensure that people know whether or not they can trust the kidnappers. However, how does that work for transnational hostages? How does it work for the tourist that gets picked up in a bar late at night? How does that work for the aid-worker? How does that work for the expatriate?
Enter kidnap insurance
“There’s a very limited number of insurers, syndicates, underwrite kidnap-for-ransom, and they exchange information about trustworthy kidnappers and rogue kidnappers.”
- Insurance actually ‘orders the market’, creating moral hazard in the process.
- Corps buy ‘kidnap for ransom’ insurance with conditions:
- Insured cannot know about it
- Corporation provides security
- In some areas, kidnapping occurs because corp didn’t know who to pay protection money to
- Lloyd’s of London brokers a market of insurance companies willing to ensure special risks (like a basketball player’s knee)
- The market settles into a civil equilibrium
- Small supply. Crisis responders (often ex-special forces) retained by the insurer will have specific experience with a class of kidnapper
- Insurers share info and more coordinated than the heterogenous kidnappers which keep prices down. However, when gov’t come in splashing the pot it changes the dynamics of the game as it raises the expectations of kidnappers b/c of public pressures and gov’t large resources and because unlike insurers they are in a one-off game (France hopes the next victim is Swiss)
- Each kidnap market has local conventions
- Example: Pirates want money dropped in canisters next to the ship so that kidnappers can stay high enough to avoid capture himself
- Businesses that provide secure common ground for handoffs(almost like escrow!)
- Trustworthy middlemen — again ‘shadow of the future’; reputations and long-running exchanges (reminds me of my open-outcry trading past. In the pits, your “word was your bond”)
- While any one transaction can go wrong on average the market hovers around a going price.
- If kidnappers make mistakes, then they are out of business.
- “Sometimes you have very emotional kidnappers. Sometimes you have stupid kidnappers. But stupid kidnappers will reveal information. And ultimately it is in the insurer’s interest to eliminate stupid kidnappers–well, eliminate kidnappers where possible. But if you have stupid kidnappers who make mistakes, you can remove them from the market by dropping some hints to the police.”
On the game theory of negotiation
- Manage kidnapper’s expectation of ransom size (hide the fact that the captive is insured)
- “Squeezing the towel” process as the concessions offered to the kidnappers turn in to a slow drip
- Eventually, the concessions are below the kidnappers’ cost to hold the victim. For example, the longer a hostage in custody the more expensive (via bribes) to keep it secret
- Can’t reward kidnapper’s bad behavior or threats (“parenting lesson”)
- Negotiators help the kidnappers see things through a more rational perspective. And, they educate them. And say, ‘Yes, we don’t want you to hurt Uncle Ted.’ And, ‘You’re not going to get anything out of hurting Uncle Ted.’ And they just help the kidnappers see how that strategy is not going to be helpful.