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

Author
Juan Camilo Castillo, Daniel Mejia, Pascual Restrepo
Content Type
Working Paper
Institution
Center for Global Development
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.
Topic
Crime, Economics, War on Drugs, Narcotics Trafficking, Law Enforcement
Political Geography
Colombia, Latin America, Mexico