[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/23181.html
   My bibliography  Save this paper

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

Author

Listed:
  • Ryan Brown
  • Verónica Montalva
  • Duncan Thomas
  • Andrea Velásquez
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

  • Ryan Brown & Verónica Montalva & Duncan Thomas & Andrea Velásquez, 2017. "Impact of Violent Crime on Risk Aversion: Evidence from the Mexican Drug War," NBER Working Papers 23181, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:23181
    Note: DEV
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w23181.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Deaton, Angus, 1991. "Saving and Liquidity Constraints," Econometrica, Econometric Society, vol. 59(5), pages 1221-1248, September.
    2. Nicolas Ajzenman & Sebastian Galiani & Enrique Seira, 2015. "On the Distributive Costs of Drug-Related Homicides," Journal of Law and Economics, University of Chicago Press, vol. 58(4).
    3. Pamela Jakiela & Owen Ozier, 2019. "The Impact of Violence on Individual Risk Preferences: Evidence from a Natural Experiment," The Review of Economics and Statistics, MIT Press, vol. 101(3), pages 547-559, July.
    4. Moya, Andrés, 2018. "Violence, psychological trauma, and risk attitudes: Evidence from victims of violence in Colombia," Journal of Development Economics, Elsevier, vol. 131(C), pages 15-27.
    5. Gabriela Calderon & Gustavo Robles & Beatriz Magaloni, 2013. "Economic Consequences of Drug-Trafficking Violence in Mexico," Research Department Publications IDB-WP-426, Inter-American Development Bank, Research Department.
    6. Alain Cohn & Jan Engelmann & Ernst Fehr & Michel André Maréchal, 2015. "Evidence for Countercyclical Risk Aversion: An Experiment with Financial Professionals," American Economic Review, American Economic Association, vol. 105(2), pages 860-885, February.
    7. Luigi Guiso & Monica Paiella, 2008. "Risk Aversion, Wealth, and Background Risk," Journal of the European Economic Association, MIT Press, vol. 6(6), pages 1109-1150, December.
    8. Ulrike Malmendier & Stefan Nagel, 2011. "Depression Babies: Do Macroeconomic Experiences Affect Risk Taking?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(1), pages 373-416.
    9. Gharad Bryan & Shyamal Chowdhury & Ahmed Mushfiq Mobarak, 2014. "Underinvestment in a Profitable Technology: The Case of Seasonal Migration in Bangladesh," Econometrica, Econometric Society, vol. 82(5), pages 1671-1748, September.
    10. Acharya, Avidit & Blackwell, Matthew & Sen, Maya, 2016. "Explaining Causal Findings Without Bias: Detecting and Assessing Direct Effects," American Political Science Review, Cambridge University Press, vol. 110(3), pages 512-529, August.
    11. Raghunathan, Rajagopal & Pham, Michel Tuan, 1999. "All Negative Moods Are Not Equal: Motivational Influences of Anxiety and Sadness on Decision Making, , , , ," Organizational Behavior and Human Decision Processes, Elsevier, vol. 79(1), pages 56-77, July.
    12. Miles S. Kimball & Claudia R. Sahm & Matthew D. Shapiro, 2009. "Risk Preferences in the PSID: Individual Imputations and Family Covariation," American Economic Review, American Economic Association, vol. 99(2), pages 363-368, May.
    13. Ryan Brown, 2018. "The Mexican Drug War and Early-Life Health: The Impact of Violent Crime on Birth Outcomes," Demography, Springer;Population Association of America (PAA), vol. 55(1), pages 319-340, February.
    14. Melissa Dell, 2015. "Trafficking Networks and the Mexican Drug War," American Economic Review, American Economic Association, vol. 105(6), pages 1738-1779, June.
    15. Nguyen, Y. & Noussair, C.N., 2013. "Risk Aversion and Emotions," Discussion Paper 2013-041, Tilburg University, Center for Economic Research.
    16. Kimball, Miles S & Sahm, Claudia R & Shapiro, Matthew D, 2008. "Imputing Risk Tolerance From Survey Responses," Journal of the American Statistical Association, American Statistical Association, vol. 103(483), pages 1028-1038.
    17. Maarten J. Voors & Eleonora E. M. Nillesen & Philip Verwimp & Erwin H. Bulte & Robert Lensink & Daan P. Van Soest, 2012. "Violent Conflict and Behavior: A Field Experiment in Burundi," American Economic Review, American Economic Association, vol. 102(2), pages 941-964, April.
    18. Pascaline Dupas, 2014. "Short‐Run Subsidies and Long‐Run Adoption of New Health Products: Evidence From a Field Experiment," Econometrica, Econometric Society, vol. 82(1), pages 197-228, January.
    19. Guiso, Luigi & Sapienza, Paola & Zingales, Luigi, 2018. "Time varying risk aversion," Journal of Financial Economics, Elsevier, vol. 128(3), pages 403-421.
    20. Kerwin Kofi Charles & Erik Hurst, 2003. "The Correlation of Wealth across Generations," Journal of Political Economy, University of Chicago Press, vol. 111(6), pages 1155-1182, December.
    21. Decker, Simon & Schmitz, Hendrik, 2016. "Health shocks and risk aversion," Journal of Health Economics, Elsevier, vol. 50(C), pages 156-170.
    22. Bellemare, Charles & Shearer, Bruce, 2010. "Sorting, incentives and risk preferences: Evidence from a field experiment," Economics Letters, Elsevier, vol. 108(3), pages 345-348, September.
    23. Lisa Cameron & Manisha Shah, 2015. "Risk-Taking Behavior in the Wake of Natural Disasters," Journal of Human Resources, University of Wisconsin Press, vol. 50(2), pages 484-515.
    24. Shrader, Elizabeth, 2001. "Methodologies to measure the gender dimensions of crime and violence," Policy Research Working Paper Series 2648, The World Bank.
    25. Callen, Mike & Isaqzadeh, Mohammad & Long, James D. & Sprenger, Charles, 2014. "Violence and risk preference: experimental evidence from Afghanistan," LSE Research Online Documents on Economics 102932, London School of Economics and Political Science, LSE Library.
    26. Michael Callen & Mohammad Isaqzadeh & James D. Long & Charles Sprenger, 2014. "Violence and Risk Preference: Experimental Evidence from Afghanistan," American Economic Review, American Economic Association, vol. 104(1), pages 123-148, January.
    27. Chie Hanaoka & Hitoshi Shigeoka & Yasutora Watanabe, 2015. "Do Risk Preferences Change? Evidence from Panel Data before and after the Great East Japan Earthquake," NBER Working Papers 21400, National Bureau of Economic Research, Inc.
    28. Kan, Kamhon, 2003. "Residential mobility and job changes under uncertainty," Journal of Urban Economics, Elsevier, vol. 54(3), pages 566-586, November.
    29. Brown, Ryan & Velásquez, Andrea, 2017. "The effect of violent crime on the human capital accumulation of young adults," Journal of Development Economics, Elsevier, vol. 127(C), pages 1-12.
    30. Campos-Vazquez, Raymundo M. & Cuilty, Emilio, 2014. "The role of emotions on risk aversion: A Prospect Theory experiment," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 50(C), pages 1-9.
    31. John Quiggin, 2003. "Background risk in generalized expected utility theory," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 22(3), pages 607-611, October.
    32. Robert B. Barsky & F. Thomas Juster & Miles S. Kimball & Matthew D. Shapiro, 1997. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Study," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(2), pages 537-579.
    33. Lusardi, Annamaria, 1998. "On the Importance of the Precautionary Saving Motive," American Economic Review, American Economic Association, vol. 88(2), pages 449-453, May.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fang, Guanfu & Li, Wei & Zhu, Ying, 2022. "The shadow of the epidemic: Long-term impacts of meningitis exposure on risk preference and behaviors," World Development, Elsevier, vol. 157(C).
    2. Goytom Abraha Kahsay & Daniel Osberghaus, 2018. "Storm Damage and Risk Preferences: Panel Evidence from Germany," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 71(1), pages 301-318, September.
    3. Kettlewell, Nathan, 2019. "Risk preference dynamics around life events," Journal of Economic Behavior & Organization, Elsevier, vol. 162(C), pages 66-84.
    4. Haile, Kaleab K. & Nillesen, Eleonora & Tirivayi, Nyasha, 2020. "Impact of formal climate risk transfer mechanisms on risk-aversion: Empirical evidence from rural Ethiopia," World Development, Elsevier, vol. 130(C).
    5. Muhammad Nasir & Marc Rockmore & Chih Ming Tan, 2015. "It's No Spring Break in Cancun: The Effects of Exposure to Violence on Risk Preferences, Pro-Social Behavior, and Mental Health," Working Paper series 15-40, Rimini Centre for Economic Analysis.
    6. Nicholas Ingwersen & Elizabeth Frankenberg & Duncan Thomas, 2023. "Evolution of Risk Aversion over Five Years after a Major Natural Disaster," NBER Working Papers 31102, National Bureau of Economic Research, Inc.
    7. Jetter, Michael & Magnusson, Leandro M. & Roth, Sebastian, 2020. "Becoming sensitive: Males’ risk and time preferences after the 2008 financial crisis," European Economic Review, Elsevier, vol. 128(C).
    8. Decker, Simon & Schmitz, Hendrik, 2016. "Health shocks and risk aversion," Journal of Health Economics, Elsevier, vol. 50(C), pages 156-170.
    9. Cheng, Lingguo & Lu, Yunfeng, 2024. "Does retirement make people more risk averse?," Journal of Economic Behavior & Organization, Elsevier, vol. 224(C), pages 135-155.
    10. Hetschko, Clemens & Preuss, Malte, 2020. "Income in jeopardy: How losing employment affects the willingness to take risks," Journal of Economic Psychology, Elsevier, vol. 79(C).
    11. Hallegatte,Stephane & Bangalore,Mook & Jouanjean,Marie Agnes, 2016. "Higher losses and slower development in the absence of disaster risk management investments," Policy Research Working Paper Series 7632, The World Bank.
    12. Sabine Liebenehm & Ingmar Schumacher & Eric Strobl, 2024. "Rainfall shocks and risk aversion: Evidence from Southeast Asia," American Journal of Agricultural Economics, John Wiley & Sons, vol. 106(1), pages 145-176, January.
    13. Kahsay, Goytom Abraha & Osberghaus, Daniel, 2016. "Extreme weather and risk preference: Panel evidence from Germany," ZEW Discussion Papers 16-032, ZEW - Leibniz Centre for European Economic Research.
    14. Dietmar Fehr & Yannick Reichlin, 2021. "Status, Control Beliefs, and Risk-Taking," CESifo Working Paper Series 9253, CESifo.
    15. Zhu, Xuemin & van der Pol, Marjon & Scott, Anthony & Allan, Julia, 2023. "The stability of physicians’ risk attitudes across time and domains," Social Science & Medicine, Elsevier, vol. 339(C).
    16. Ingwersen, Nicholas & Frankenberg, Elizabeth & Thomas, Duncan, 2023. "Evolution of risk aversion over five years after a major natural disaster," Journal of Development Economics, Elsevier, vol. 163(C).
    17. Insoo Cho & Peter F. Orazem, 2021. "How endogenous risk preferences and sample selection affect analysis of firm survival," Small Business Economics, Springer, vol. 56(4), pages 1309-1332, April.
    18. Pamela Jakiela & Owen Ozier, 2019. "The Impact of Violence on Individual Risk Preferences: Evidence from a Natural Experiment," The Review of Economics and Statistics, MIT Press, vol. 101(3), pages 547-559, July.
    19. Abatayo, Anna Lou & Lynham, John, 2020. "Risk preferences after a typhoon: An artefactual field experiment with fishers in the Philippines," Journal of Economic Psychology, Elsevier, vol. 79(C).
    20. Aragón, Fernando M. & Molina, Oswaldo & Outes-León, Ingo W., 2020. "Property rights and risk aversion: Evidence from a titling program," World Development, Elsevier, vol. 134(C).

    More about this item

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:23181. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.