Prohibition vs. Peace

Why are illegal markets so resilient? Literature on the political economy of enforcement points to weak state capacity, ineffective enforcement technology, or electoral incentives for forbearance — none of which characterize prohibition efforts such as the U.S. war on drugs. We propose instead that governments face a tradeoff between prohibition and low violence. Using a model in which policy affects dynamic interaction among traffickers, we show that reducing the supply of an illegal good can increase profits through higher prices — and higher profits drive violence among traffickers, who invest more in fighting over an increasingly valuable prize. Jailing or killing traffickers makes them short-sighted and splinters their criminal organizations — both of which increase violence. While previous models of illegal markets focus either on supply reduction or on violence, we consider both together, revealing why prohibition is self-limiting: the government achieves one enforcement goal only at the cost of another.