The Barbary Pirates Case
Questions: Who do you think is correct? Adam or Jefferson? Why?
What are the major uncertainties in this decision problem and how it may influence your decision?
Should the US build a Navy based on these discussions? Why or why not?
	Adams Position
Negotiate for safe passage	Do nothing	War
maximum 500,000 (possible 300,000 or even 200,000)	6-8% insurance expense on imports and exports	At least 500,000 a year without protecting trade
6% interest (30,000 or as low as 10,000)	100% loss of Mediterranean and Levant trades	We ought not fight them at all unless we determine to fight them forever"
	50% loss of Portugal and Spain Trade	If lost the war, still have to pay the pirates
	Minimum 500,000
Who Pays? Does it Matter?	The Cost of doing nothing	Opportunity Cost: New Concept?
1.Negotiate with the Barbary States US Government	A loss of more than half a million sterling a year
2. Wage war against the Barbary States US Governmnet	through insurance and loss of trade
Military Personnel and their families (?)	It is necessary to put a cost on the action of
3. Do nothing	doing nothing because it serves as a benchmark
US Government, Private Citizens, Non-Citizens (?)	against which alternative courses of action can be
Loss of Credibility of a new Nation?	weighed on the cost/benefit.
	Adams Decision Tree
Build Navy and Fight At least 500,000	Do not Build Navy, Negotiate	Do nothing - High
	500,000 or Less based on negotiation
	Adams Rationale
	Use of the idea of Dominated Strategy.
Minimax	If the minimum cost of action A is more than the maximum	In this case, negotiate
	cost of Action B then, B dominates A and is preferred.
	Jeffersons View
Believes it is proper and necessary to	Need Navy no matter what	Jefferson advocates going to war
establish a small marine force in peaceful and
turbulent times
	Initial Cost as Sunk Costs?
Past costs that are unavoidable because they cannot	Strategic Sunk Costs(?):
be changed no matter what action is taken	Cost of building the original fleet at the time of
	possible war in the future
	Jeffersons Cost Calculation
Building the fleet: 450,000 pounds	Annual operating expense to keep the fleet in order	Annual operating expense during times of peace
Not relevant in the current situation (Why?)	for service: 45,000 pounds	Half of fleet should be in constant cruise
	(300 pounds sterling per gun * fleet of 150 guns)	Navy kept in order for service in dockyards
		Cost half as much annually as in time of war 22,500 pounds
	Jefferson's Cost of Aljerian War
Based on Jeffersons belief that the United States	Jefferson sees the additional cost on the navy	IncrementalCost:NewConcept?
hould always maintain a small navy and his	(45,000 during war 22,500 during peace) as the
calculations of the costs he says we have a right to	only relevant cost of war.
say that only 22,500 pounds... should be charged to
the Algerine war.
	Jefferson's Logic for two types of Costs
A navy fleet is a very expensive endeavor	Count on 12 15 years of peace
A vessel entirely decays within 10 12 years	Burn the existing ships and build a new one after that period?
Repair & maintenance expense of the vessel costs as much	What is the sense of this statement?
to build a new vessel
	To burn the fleet?
Cost of building the original fleet	In future needs replacement	Costs are similar for building new or maintain
Irrelevant because its a sunk cost	Effective life (12 15 years?)	Depreciation:New concept?
	Capitalization and Depreciation
The cost of the fleet,450,000pounds,is capitalized	Depreciated at 45,000pounds per year if the useful	The fleet will have anannual operating costs of
when the fleet is built	life is 10 years.	22,500 or 45,000 pounds depending on if the fleet is in use or not.
	Jefferson's Decision Tree
Build Navy	Do not
Fight	Negotiate
Negotiate	Do noting
Do nothing
Adams	Jefferson
- Thought we should pay the Barbary States for peace.	- Thought the development of naval fleet was the way
- Presented his cost data to make the buy out for	to handle the piracy problem.
peace a more attractive option versus developing a	- Presented his cost data with Adams thoughts in
naval fleet.	mind, but looked further into the actual and relevant
- Thought process some what narrow mindedand not	costs of a navy.
very forward thinking	- Looked at the bigger picture of the situation and how
	buying our peace with the Barbary States might
	affect the US over time.
	Jefferson's Decision Tree after reduction of dominated choices
Build Navy 450 K	Do not
Fight 22.5 K per year (10 years?)	Do noting (Big Loss)
Negotiate 300K (for 10 years ?)