Do the Lessons From Micro-Conflict Literature Transfer to High Crime Areas?: Examining Mexico’s War on Drugs

Exposure to political violence has been found to affect behavioural parameters. The effects of high levels of criminal violence, however, are largely unknown. We examine the effects of Mexico’s war on drugs on risk aversion, mental health and pro-social behaviour. Using a nonlinear difference-in-differences (DiD) model, we find that the post 2006 surge in violence significantly increased risk aversion and reduced trust in civic institutions without any simultaneous strengthening of kinship relationships. Although the deterioration of mental health due to violence exposure has been hypothesised to explain changes in risk aversion, we find no such effect.