Pirates of the Mediterranean: An Empirical Investigation of Bargaining with Transaction Costs

This paper uses data detailing ransom prices and time to ransom for over 10,000 captives rescued from the Barbary Corsairs between 1575 and 1739 to investigate the empirical relevance of dynamic bargaining models with one-sided asymmetric information. Our unique dataset includes information that only the buyer knew. In addition, we observe multiple negotiations that were similar (ex ante) from the uninformed party’s (seller’s) point of view. Empirical results suggest that existing dynamic bargaining models have substantial explanatory power both regarding the evolution of prices over time as well as how a variety of other factors affected bargaining outcomes. In particular, variation in the costs of bargaining between two corsair strongholds helps explain many of the observed outcome differences. ∗Harvard University and NBER. †Harvard University. We thank seminar participants at Stanford and NYU Abu Dhabi for helpful comments and discussions. The library staff at the Biblioteca Nacional de Madrid and the Archivo Histórico Nacional facilitated the data collection. Judith Gallego provided outstanding research assistance. Any remaining errors are our own.