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

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 this effect 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 United States, with multiple cartels and with strong support for PAN (the incumbent party). Between 2006 and 2009 the decline in cocaine supply from Colombia could account for 10% to 14% of the increase in violence in Mexico.