Working Paper: NBER ID: w23181
Authors: Ryan Brown; Veronica Montalva; Duncan Thomas; Andrea Velsquez
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.
Keywords: Risk Aversion; Violent Crime; Mexican Drug War
JEL Codes: D81; I3; O15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| exposure to local-area violent crime (K42) | risk aversion (D81) |
| increase of 1 homicide per 10,000 people (J17) | risk aversion (D81) |
| fear and insecurity (F52) | risk aversion (D81) |
| economic suffering due to violence (F51) | risk aversion (D81) |