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Should drug policy be aimed at cartel leaders? Breaking down a peaceful equilibrium

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  • Juan Camilo Castillo

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    Abstract

    Experience from the last decade in Colombia and Mexico suggests that violence increases when governments achieve their objective of beheading and fragmenting drug trafficking organizations (DTOs). In this paper I provide a theoretical framework to understand this behavior. Drawing elements from industrial organization, I model DTOs as firms that collude by not attacking each other in order to increase their profits. DTOs always collude when they interact repeatedly; thus, previous analyses focusing on a static Nash equilibrium miss an important part of the dynamics between DTOs. I show that a peaceful equilibrium arises if there are only a few DTOs that care enough about the future. Policies resulting either in a larger number of DTOs or in more impatient leaders increase violence between DTOs without reducing supply. On the other hand, policies that reduce the productivity of DTOs, without directly attacking their leaders and fragmenting them, are more desirable since they can curb supply, although this comes at the cost of increased violence if the elasticity of demand is below a certain threshold. I calculate this threshold, which is a refinement of the value suggested by Becker et al. (2006) for consumer markets.

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    File URL: http://economia.uniandes.edu.co/publicaciones/dcede2013-41.pdf
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    Bibliographic Info

    Paper provided by UNIVERSIDAD DE LOS ANDES-CEDE in its series DOCUMENTOS CEDE with number 011471.

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    Length: 52
    Date of creation: 27 Aug 2013
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    Handle: RePEc:col:000089:011471

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    Keywords: War on Drugs; Illegal Drug Markets; Violence; Supply Reduction;

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    1. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    2. Mailath, George J. & Samuelson, Larry, 2006. "Repeated Games and Reputations: Long-Run Relationships," OUP Catalogue, Oxford University Press, number 9780195300796.
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