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Scarcity without Leviathan: The Violent Effects of Cocaine Supply Shortages in the Mexican Drug War - Working Paper 356

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  • Juan Camilo Castillo, Daniel Mejia, and Pascual Restrepo

Abstract

Using the case of the cocaine trade in Mexico as a relevant and salient example, this paper shows that scarcity leads to violence in markets without third party enforcement. We construct a model in which supply shortages increase total revenue when demand is inelastic. If property rights over revenues are not well defined because of the lack of reliable third party enforcement, the incentives to prey on others and avoid predation by exercising violence increase with scarcity, thus increasing violence. We test our model and the proposed channel using data for the cocaine trade in Mexico. We found that exogenous supply shocks originated in changes in the amount of cocaine seized in Colombia (Mexico's main cocaine supplier) create scarcity and increase drug-related violence in Mexico. In accordance with our model, the effect of cocaine scarcity on violence is larger near US entry points; in locations contested by several cartels; and where, due to high support for the PAN party, crackdowns on the cocaine trade have been more frequent. Our estimates suggest that, for the period 2006-2010, scarcity created by more efficient interdiction policies in Colombia may account for 21.2% and 46% of the increase in homicides and drug-related homicides, respectively, experienced in the north of the country. At least in the short run, scarcity created by Colombian supply reduction efforts has had negative spillovers in the form of more violence in Mexico under the so-called War on Drugs.

Suggested Citation

  • Juan Camilo Castillo, Daniel Mejia, and Pascual Restrepo, 2014. "Scarcity without Leviathan: The Violent Effects of Cocaine Supply Shortages in the Mexican Drug War - Working Paper 356," Working Papers 356, Center for Global Development.
  • Handle: RePEc:cgd:wpaper:356
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    References listed on IDEAS

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    Cited by:

    1. Enamorado, Ted & López-Calva, Luis F. & Rodríguez-Castelán, Carlos & Winkler, Hernán, 2016. "Income inequality and violent crime: Evidence from Mexico's drug war," Journal of Development Economics, Elsevier, vol. 120(C), pages 128-143.
    2. Pedro Paulo Orraca Romano, 2015. "Crime Exposure and Educational Outcomes in Mexico," Working Paper Series 7715, Department of Economics, University of Sussex Business School.
    3. Maria Micaela Sviatschi, 2018. "Making a Narco: Childhood Exposure to Illegal Labor Markets and Criminal Life Paths," Working Papers 2018-03, Princeton University, Woodrow Wilson School of Public and International Affairs, Research Program in Development Studies..
    4. repec:oup:jeurec:v:15:y:2017:i:3:p:558-585. is not listed on IDEAS
    5. Mathieu Couttenier & Pauline Grosjean & Marc Sangnier, 2017. "The Wild West IS Wild: The Homicide Resource Curse," Journal of the European Economic Association, European Economic Association, vol. 15(3), pages 558-585.
    6. repec:ere:journl:v:xxxvii:y:2018:i:2:p:177-212 is not listed on IDEAS
    7. repec:eee:deveco:v:127:y:2017:i:c:p:1-12 is not listed on IDEAS
    8. De Hoyos Navarro,Rafael E. & Gutierrez Fierros,Carlos & Vargas M.,J. Vicente, 2016. "Idle youth in Mexico : trapped between the war on drugs and economic crisis," Policy Research Working Paper Series 7558, The World Bank.
    9. Balmori de la Miyar Jose Roberto, 2016. "The Economic Consequences of the Mexican Drug War," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 22(3), pages 213-246, August.
    10. Daron Acemoglu & Giuseppe De Feo & Giacomo De Luca, 2017. "Weak States: Causes and Consequences of the Sicilian Mafia," NBER Working Papers 24115, National Bureau of Economic Research, Inc.
    11. Orraca Romano, Pedro Paulo, 2016. "Essays on development and labour economics for Mexico," Economics PhD Theses 0816, Department of Economics, University of Sussex Business School.
    12. repec:spr:izamig:v:7:y:2017:i:1:d:10.1186_s40176-017-0102-6 is not listed on IDEAS

    More about this item

    Keywords

    Rule of Law; War on Drugs; Violence; Illegal Markets; Mexico;

    JEL classification:

    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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