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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.

Suggested Citation

  • Juan Camilo Castillo, 2013. "Should drug policy be aimed at cartel leaders? Breaking down a peaceful equilibrium," DOCUMENTOS CEDE 011471, UNIVERSIDAD DE LOS ANDES-CEDE.
  • Handle: RePEc:col:000089:011471
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    File URL: http://economia.uniandes.edu.co/publicaciones/dcede2013-41.pdf
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    References listed on IDEAS

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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, January.
    2. Motta,Massimo, 2004. "Competition Policy," Cambridge Books, Cambridge University Press, number 9780521016919, December.
    3. Ishii, Jun & Jun, Sunyoung & Van Dender, Kurt, 2009. "Air travel choices in multi-airport markets," Journal of Urban Economics, Elsevier, pages 216-227.
    4. Mailath, George J. & Samuelson, Larry, 2006. "Repeated Games and Reputations: Long-Run Relationships," OUP Catalogue, Oxford University Press, number 9780195300796.
    5. Garfinkel, Michelle R. & Skaperdas, Stergios, 2007. "Economics of Conflict: An Overview," Handbook of Defense Economics, Elsevier.
    6. Poret, Sylvaine, 2002. "Paradoxical effects of law enforcement policies: the case of the illicit drug market," International Review of Law and Economics, Elsevier, vol. 22(4), pages 465-493, December.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

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

    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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