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

Ryan Brown, Verónica Montalva, Duncan Thomas and Andrea Velasquez

No 23181, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: D81 I3 O15 (search for similar items in EconPapers)
Date: 2017-02
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Citations: View citations in EconPapers (15)

Published as Ryan Brown & Verónica Montalva & Duncan Thomas & Andrea Velásquez, 2019. "Impact of Violent Crime on Risk Aversion: Evidence from the Mexican Drug War," The Review of Economics and Statistics, vol 101(5), pages 892-904.

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