Do the Lessons from Micro-Conflict Literature Transfer to High Crime Areas?: Examining Mexico’s War on Drugs

Abstract

Exposure to political violence is known to affect behavioral parameters. The effects of high levels of criminal violence, however, are largely unknown. We examine the effects of Mexico’s war on drugs on risk aversion, mental health and pro-social behavior. Using a difference-in-differences (DiD) approach, we find that the post 2006 surge in violence significantly increased risk aversion and reduced trust in civic institutions without any simultaneously strengthening of kinship relationships. We explore the possibility that deterioration of mental health due to exposure to violence explains the changes in risk aversion, but find no such effect.

Keywords: violence, risk aversion, social capital, mental health, Mexico

JEL Classification: A12, D03, D81, O12