It’s no Spring Break in Cancun: The Effects of Exposure to Violence on Risk Preferences, Pro-Social Behavior and Mental Health

Exposure to violence has been found to affect behavioral parameters, mental health and social interactions. The literature focuses on large scale political violence. The effects of high levels of criminal violence – a common phenomenon in Latin America and the Caribbean – are largely unknown. We examine drug violence in Mexico and, in particular, the effects of exposure to high municipal levels of homicides on risk aversion, mental health and pro-social behavior. Using a nonlinear difference-in-differences (DID) model and data from the 2005-06 and 2009-12 waves of the Mexican Family Life Survey, we find that the surge in violence in Mexico after 2006 significantly increased risk aversion and reduced trust in civic institutions while simultaneously strengthening kinship relationships. Although the deterioration of mental health due to violence exposure has been hypothesized to explain changes in risk aversion, we find no such effect. This suggests that the literature may be potentially missing out on other relevant channels.