Impact of Violent Crime on Risk Aversion: Evidence from the Mexican Drug War

44 Pages Posted: 21 Feb 2017 Last revised: 23 Feb 2017

See all articles by Ryan Brown

Ryan Brown

University of Colorado at Denver - Department of Economics

Verónica Montalva

Inter-American Development Bank (IDB)

Duncan Thomas

Duke University

Andrea Velásquez

Duke University, Department of Economics, Students

Date Written: February 2017

Abstract

Whereas attitudes towards risk are thought to play an important role in many decisions over the life-course, factors that affect those attitudes are not fully understood. Using longitudinal survey data collected in Mexico before and during the Mexican war on drugs, we investigate how an individual’s risk attitudes change with variation in levels of insecurity and uncertainty brought on by unprecedented changes in local-area violent crime due to the war on drugs. Exploiting the fact that the timing, virulence and spatial distribution of changes in violent crime were unanticipated, we establish the changes can plausibly be treated as exogenous in models that also take into account unobserved characteristics of individuals that are fixed over time. As local-area violent crime increases, there is a rise in risk aversion that is distributed through the entire local population.

Suggested Citation

Brown, Ryan and Montalva, Verónica and Thomas, Duncan and Velásquez, Andrea, Impact of Violent Crime on Risk Aversion: Evidence from the Mexican Drug War (February 2017). NBER Working Paper No. w23181, Available at SSRN: https://ssrn.com/abstract=2920399

Ryan Brown (Contact Author)

University of Colorado at Denver - Department of Economics ( email )

Campus Box 181
P.O. Box 173364
Denver, CO 80217-3364
United States

Verónica Montalva

Inter-American Development Bank (IDB) ( email )

1300 New York Avenue NW
Washington, DC 20577
United States

Duncan Thomas

Duke University ( email )

Andrea Velásquez

Duke University, Department of Economics, Students ( email )

Durham, NC
United States

HOME PAGE: http://www.econ.duke.edu/

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