The Resilience of Illegal Markets

This paper explores under which conditions drug trafficking cartels wage war or stay in peace, and finds the effect of policy on drug supply and violence. I model cartels as profit maximizers that would attack each other in a one-period game, but reduce the resources they commit to warfare in a repeated game. If cartels are sufficiently forward looking, a peaceful equilibrium arises. Policies that lead to impatience or fragmentation increase violence without an effect on supply. Policies that reduce the productivity of cartels curb supply, although they increase violence if demand is too inelastic.