On the Distributive Costs of Drug-Related Homicides
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.
The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. We would like to acknowledge Alan Elizondo for help getting data. We are grateful for the financial support for this research project received from the Inter-American Development Bank (IDB). We also wish to thank the participants in various seminars for their valuable comments.
Nicolas Ajzenman & Sebastian Galiani & Enrique Seira, 2015. "On the Distributive Costs of Drug-Related Homicides," The Journal of Law and Economics, vol 58(4), pages 779-803.