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

Abstract

This paper asks whether scarcity increases violence in markets that lack a centralized authority. We construct a model in which, by raising prices, scarcity fosters violence. Guided by our model, we examine 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 cocaine supplier-increases violence in Mexico. The effects are larger in municipalities near the US, with multiple cartels, and with strong PAN support. Between 2006 and 2009 the decline in cocaine supply from Colombia could account for 10%-14% of the increase in violence in Mexico.

The Logic of Violence in Drug War

“…Our results on interdiction and beheadings also provide theoretical underpinnings for empirical work documenting a relationship between these policies and violence in illegal markets (Calderón et al 2015;Castillo, Mejía, and Restrepo 2020;Dell 2015; García-Jimeno 2016; Phillips 2015) as well as, more generally, work on violence in illegal markets in Latin America (Angrist and Kugler 2008;Chimeli and Boyd 2010;Dube, Garcia-Ponce, and Thom 2016;Krakowski and Zubiría 2018;Kronick 2020;Mejía and Restrepo 2013;Yashar 2018).…”

“…Conflict arising from displacement or desperation would spark local and short-run violence in the wake of specific seizures, whereas our model implies a global increase in violence-cartels everywhere know that the new equilibrium means higher profits, which fuels conflict. Castillo, Mejía, and Restrepo (2020) observe this outcome in Mexico. Around 2008, the US and Colombian governments moved from an ineffective strategy of coca crop eradication-which one writer compared to "trying to drive up the price of fine art by raising the cost of paint" (Wainwright 2016)-to the more effective approach of drug interdiction (Mejía and Restrepo 2016).…”

“…Simultaneously, violence in Mexico doubled. Castillo, Mejía, and Restrepo (2020) estimate that a 1% decrease in the supply of cocaine (because of interdiction) drove a 0.12% to 0.16% increase in homicide rates in the Mexican municipalities most exposed to drug trafficking. Our model provides a possible explanation for this result: negative supply shocks increased the stakes of conflict and thus violence among cartels.…”

Profits and Violence in Illegal Markets: Evidence from Venezuela

“…If money in illegal markets in Venezuela fueled violent conflict, why? This finding is in keeping with some theoretical results but at variance with others; empirically, while some studies document a positive relationship between trafficking booms and violence (e.g., Angrist and Kugler 2008; de la Sierra 2014; Castillo et al Forthcoming), others point to the peaceful growth of international and domestic trafficking markets (e.g., Duran-Martinez 2015a; Lessing 2018).…”

“…The results also speak to research on the determinants of violence in Latin America. The Venezuelan case provides little support for the notion that demographic trends (De Mello and Schneider 2010) or inequality (Soares and Naritomi 2010) explain shifts in homicide rates; however, it is consistent with recent evidence that counternarcotics operations in one country can dramatically affect homicide rates along supply routes in other countries (Yashar 2018; Castillo et al Forthcoming). And within the qualitative literature, whether drug trafficking fuels violence in Venezuela remains an open question (compare, e.g., ICG 2011; Antillano 2009).…”