The Use of Violence in Illegal Markets: Evidence from Mahogany Trade in the Brazilian Amazon

46 Pages Posted: 4 Sep 2011

See all articles by Ariaster Chimeli

Ariaster Chimeli

Ohio University - Department of Economics

Rodrigo R. Soares

Columbia University - School of International & Public Affairs (SIPA); Getulio Vargas Foundation (FGV) - Sao Paulo School of Economics; IZA Institute of Labor Economics

Abstract

Agents operating in illegal markets cannot resort to the justice system to guarantee property rights, to enforce contracts, or to seek protection from competitors' improper behaviors. In these contexts, violence is used to enforce previous agreements and to fight for market share. This relationship plays a major role in the debate on the pernicious effects of the illegality of drug trade. This paper explores a singular episode of transition of a market from legal to illegal to provide a first piece of evidence on the causal effect of illegality on systemic violence. Brazil has historically been the main world producer of big leaf mahogany (a tropical wood). Starting in the 1990s, policies restricting extraction and trade of mahogany, culminating with prohibition, were implemented. First, we present evidence that large scale mahogany trade persisted after prohibition, through misclassification of mahogany exports as "other tropical timber species." Second, we document relative increases in violence after prohibition in areas with: (i) higher share of mahogany exports before prohibition; (ii) higher suspected illegal mahogany activity after prohibition; and (iii) natural occurrence of mahogany. We believe this is one of the first documented experiences of increase in violence following the transition of a market from legal to illegal.

Keywords: illegal markets, violence, homicide, mahogany, Brazil

JEL Classification: K42, O13, O17, Q58

Suggested Citation

Chimeli, Ariaster Baumgratz and Soares, Rodrigo R., The Use of Violence in Illegal Markets: Evidence from Mahogany Trade in the Brazilian Amazon. IZA Discussion Paper No. 5923. Available at SSRN: https://ssrn.com/abstract=1921974

Ariaster Baumgratz Chimeli (Contact Author)

Ohio University - Department of Economics ( email )

Athens, OH 45701-2979
United States

Rodrigo R. Soares

Columbia University - School of International & Public Affairs (SIPA) ( email )

420 West 118th Street
New York, NY 10027
United States

Getulio Vargas Foundation (FGV) - Sao Paulo School of Economics ( email )

Rua Itapeva 474 s.1202
São Paulo, São Paulo 01332-000
Brazil

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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