Benito Arruñada - UPF
Benito Arruñada - UPF

Contracting pirates

Exercise

The organization of the buoyant piracy industry in the Caribbean seas during the XVII Century followed a curious pattern, as explained by Exquemelin (1678). Before each expedition a written contract was negotiated and formally signed by all participants. The contract stipulated how the gross loot or booty would be shared among the ship and the crew members, after paying common expenditures which included the indemnification due to seamen crippled in combat. For the most part, these organizations were democratically organized, with the captain and the other posts being elected and subject to a tough scrutiny of performance, and enjoying no privileges in terms of amenities and food. The captain’s authority was absolute only during attacks. The norm ruling pirates’ behavior prohibited seamen from individually appropriating or hiding any kind of booty which each pirate could find in the attacked ships. If caught, he would be harshly penalized and lose his part. How can you explain: (1) Why did they incur the expenditures of writing contracts if, being outlaws, they had not recourse to legal remedies? (2) The norm forbidding individual appropriation of booty?

Analysis

  1. The written contract facilitates the functioning of internal safeguards of enforcement. In fact most written contracts may have this function. For instance, it is not economical to sue about an eventual default in a guarantee promise. Therefore, we may conclude that the safeguard is implicit, based on reputation. However, the guarantee is usually stated in a formal way.
  2. The norm forbidding individual appropriation of booty can be explained as an efficient incentive in a team production context. Individual appropriation is a high-powered individual incentive, which would not increase the size of the total loot and probably would destroy all or part of it. For instance, seamen might be tempted to stop fighting before victory were guaranteed in order to appropriate a bigger booty, or begin fighting among them for the most precious parts of the booty. Furthermore, it makes possible to specialize some crewmembers in certain tasks.


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