Scarcity Without Leviathan: The Violent Effects of Cocaine Supply Shortages in the Mexican Drug War

Abstract

This paper explores if scarcity increases violence in markets without a centralized authority. We construct a model in which, by raising prices and revenues, temporal supply shortages foster violence. Guided by our model, we examine empirically the link between scarcity and violence in the Mexican cocaine trade. At a monthly frequency, scarcity created by cocaine seizures in Colombia—Mexico’s main supplier of cocaine— increases violence in Mexico. The effects are larger in municipalities near the US border, with multiple cartels, and with strong PAN support—the party that spearheaded the crackdown on the cocaine trade between 2006 and 2012. Our estimates imply that, between 2006 and 2009, the sharp decline in cocaine supply from Colombia could account for 10%-14% of the increase in violence in Mexico and 25% of the differential increase of violence in the north of Mexico relative to the rest of the country.

Keywords: War on Drugs, Violence, Illegal Markets, Mexico, Cocaine Trade

JEL Classification: D74, K42