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

73 Pages Posted: 22 Jun 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

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Date Written: February 26, 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 without 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 found that exogenous supply shocks originated 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 US 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, respectively, experienced in the north of the country. At least in the short run, scarcity created by Colombian supply reduction efforts has had negative spillovers in the form of more violence in Mexico under the so-called War on Drugs.

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 (February 26, 2014). Center for Global Development Working Paper No. 356. Available at SSRN: https://ssrn.com/abstract=2457197 or http://dx.doi.org/10.2139/ssrn.2457197

Juan Camilo Castillo (Contact Author)

Stanford University - Department of Economics ( email )

Landau Economics Building
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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

Boston University - Department of Economics ( email )

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