NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

On the Distributive Costs of Drug-Related Homicides

Nicolás Ajzenman, Sebastian Galiani, Enrique Seira

NBER Working Paper No. 20067
Issued in April 2014, Revised in June 2014
NBER Program(s):   DEV

This is the first paper to study the economic effects of drug-trafficking organization violence. We exploit the manyfold increase in homicides in 2008-2011 in Mexico resulting from its war on organized drug traffickers to estimate the effect of drug-related homicides on house prices. We use an unusually rich dataset that provides national coverage on house prices and homicides and exploit within-municipality variations. We find that the impact of violence on housing prices is borne entirely by the poor sectors of the population. An increase in homicides equivalent to one standard deviation leads to a 3% decrease in the price of low-income housing. In spite of this large burden on the poor, the willingness to pay in order to reverse the increase in drug-related crime is not high. We estimate it to be approximately 0.1%of Mexico's GDP.

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Document Object Identifier (DOI): 10.3386/w20067

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