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What is the common thread that connects elephant poachers, Somali pirates, and Daesh? They can all be understood through the lens of forensic economics, a discipline that applies the tools of economics to criminal activities to find smarter approaches to combating them.

In this month’s Policy Research Talk, Senior Economist Quy-Toan Do discussed how innovative forensic economic tools and data are helping policy makers understand how criminals secure the revenue that funds their activities. By modeling criminals’ incentives and predicting their behavior, development institutions, governments, civil society, and other stakeholders have better tools to disrupt the financing of criminal activities. 

“Unfortunately, crime and violent conflict are around us everywhere we look these days,” said Research Director Asli Demirguc-Kunt, who hosted the event. “Today’s Talk is fascinating because it knits together the different experiences and lessons from a series of case studies that range from the pirates of Somalia, and poachers of elephants, to radical Islamists. Ultimately, all of these represent a failure to build effective government institutions, with regional and global consequences for trade, biodiversity, and the flow of refugees, to name only a few.” she said.

First pioneered in the 1970s by Nobel Laureate Gary Becker, forensic economics argues that criminals behave like any other rational economic agent and respond to incentives. Any market has a “supply” of potential criminals and a “demand” for crime—the set of opportunities to commit crimes. With this framework of supply and demand, “we have all of the foundations to have a market, and all of the tools in terms of regulating such a market,” said Do.

Over the past half-decade, Do has taken this theory and applied it to real world examples of crime and violent extremism, with novel and often unexpected insights.  

The Elephant Poaching Crisis in Africa

Current statistics paint a bleak picture of elephant poaching in Africa. Elephant populations have fallen from an estimated 3-5 million in the early 20^th century to fewer than 650,000 in 2013. Despite good data on numbers of elephants, little was known about ivory prices or how these might be driving poaching dynamics.

“Talking about the elephant crisis without having price data was like talking about the oil crisis without talking about oil prices,” Do said. By collecting data on ivory prices from the 1970s to the present day, researchers were able to construct a database that connected prices to poaching.

The new data revealed that ivory behaves like a financial asset that stores value. Since an international ban was enacted in 1989, the price of ivory has increased at an unrelenting 14 percent a year. The conclusion: only by taking significant measures to drop the price of ivory would rates of poaching fall enough to make a dent in the crisis. 

“If you want to bring the price low enough, you need to consider negative values. For instance, bringing financial benefits to communities that are conditional on containing poaching,” Do said. Empowering local communities and providing incentives for them to protect the elephant population could, in effect, put a negative price on ivory.

The Pirates of Somalia

In recent years, piracy off the coast of Somalia has plagued maritime shipping routes. The latest estimates point to nearly 1,100 attacks and $338 million in ransom payments.

Two major law enforcement policies have been utilized to combat this crime on the high seas: ramping up of international navies in 2008, and an increase in onboard security on individual boats. By analyzing data about the number and pace of attacks, trends in ransom, and the lengths of time captives were held hostage, Do and his team were able to develop accurate models to predict the drivers of pirate behavior.  

The model allowed them to simulate the effects of increases and decreases in law enforcement, and to identify the optimal combination of naval deployment and onboard security. 

Do also pointed to a prediction made in the 2013 report The Pirates of Somalia that pirate attacks could reemerge in the absence of sustained law enforcement actions—a predication that has been borne out by subsequent events. “Without the commitment of law enforcement on land as well as the sea, the supply of pirates will not decrease. As with the elephant crisis, policy makers need to empower and incentivize the local communities to condemn and not condone the criminal behavior,” Do said.

The Radical Islamists of Daesh

Since 2013 the radical Islamists of Daesh have sustained their violent activities through a combination of lucrative enterprises: oil, smuggling, taxes, looting and confiscation, foreign donors, kidnapping, and allegedly siphoning off foreign reserves of Iraq’s central bank. While many media reports have pointed to oil as one of Daesh’s main sources of revenue, details have been sketchy. 

Do and a team of researchers took advantage of an innovative source of data to test this claim. The burning of methane gas byproducts leaves an infrared signature that came be seen via satellite images. Combining this and historical data from before the Syrian war, researchers were able to produce a new estimate of Daesh’s oil production—31,000 barrels per day at its peak—that fell well below previous estimates. Oil, therefore, was not as large a source of revenue as widely assumed, and attacking oil production facilities would be less effective at disrupting the financing of Daesh than previously believed. 

Tapping into Communities to Combat Crime and Violent Extremism

Tying the three case studies together, Do concluded that disrupting the “supply” side of the opportunities for lucrative criminal activity is often not enough. Instead, Do argued that effectively disrupting crime requires “the decentralization of law enforcement to the level of the community.” For this to be effective, the community must also have the appropriate incentives to enforce the law—an area where development institutions like the World Bank can be of service in fragile and conflict-affected states. 

Discussant Saroj Kumar Jha, Senior Director of the Fragility, Conflict and Violence Group of the World Bank, shared his perspective on the application of these innovative tools. “It is important to dig deeper into the labor market phenomenon. In countries that are vulnerable to conflict and violent extremism, forensic economics can really help us understand that phenomenon better. Neighborhood policing organizations, in partnership with local police, have helped to contain crime and violence in neighborhoods.” He cautioned, however, that community law enforcement is most effective in areas where social cohesion is strong, but is more challenging in fragmented societies.