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

71 Pages Posted: 17 Mar 2014  

Juan Camilo Castillo

Stanford University - Department of Economics

Daniel Mejia

Universidad de los Andes, Colombia - Department of Economics

Pascual Restrepo

Boston University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: March 14, 2014

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 lacking 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 find that exogenous supply shocks originating 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 U.S. 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 in the north of the country, respectively. At least over the short run, under the so-called War on Drugs, scarcity created by Colombian supply reduction e forts has resulted in negative spillovers in the form of more violence in Mexico.

Keywords: Rule of Law, War on Drugs, Violence, Illegal Markets, Mexico.

JEL Classification: D74, K42

Suggested Citation

Castillo, Juan Camilo and Mejia, Daniel and Restrepo, Pascual, Scarcity Without Leviathan: The Violent Effects of Cocaine Supply Shortages in the Mexican Drug War (March 14, 2014). Available at SSRN: https://ssrn.com/abstract=2409268 or http://dx.doi.org/10.2139/ssrn.2409268

Juan Camilo Castillo

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States

Daniel Mejia

Universidad de los Andes, Colombia - Department of Economics ( email )

Carrera 1 No. 18 A - 10
Bogotá, AA4976
Colombia
57(1)3394949 ext 3737 (Phone)
57(1)3324492 (Fax)

HOME PAGE: http://economia.uniandes.edu.co/share/scripts/home/home.php

Pascual Restrepo (Contact Author)

Boston University - Department of Economics ( email )

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