Sunday, October 15, 2017

Black markets and violence: Chimeli and Soares on mahogany

Black markets and violence go together like lawlessness and silence...

 The Use of Violence in Illegal Markets: Evidence from Mahogany Trade in the Brazilian Amazon  By Ariaster B. Chimeli and Rodrigo R. Soares
American Economic Journal: Applied Economics 2017, 9(4): 30–57 30

Here's the abstract:
"We provide evidence on the effect of market illegality on violence. Brazil was historically the main exporter of mahogany. Starting in the 1990s, trade was restricted and eventually prohibited. We build on previous evidence that mahogany trade persisted after prohibition and document relative increases in violence in areas with natural occurrence of mahogany. We show that as illegal activity receded in the late 2000s so did the relative increase in violence. We describe an experience of increase in violence following the transition of a market from legal to illegal and contribute to the evaluation of prohibition policies under limited enforcement."

And here are the two concluding paragraphs:
"Different markets are embedded in different institutional settings and the relationship between illegality and violence is likely to vary across contexts. For example, corruption and high monitoring costs may make it difficult to enforce the prohibition of narcotics, whereas the existence of low cost substitutes for chlorofluorocarbons (CFCs) may have contributed to the largely successful—although not perfect— worldwide ban on the substance. With these caveats in mind, our analysis provides
one piece of evidence pointing to a causal effect of market illegality, per se, on the incidence of systemic violence and exemplifies how enforcement capacity interferes in this relationship.

"Our results also serve as a cautionary tale for policymakers wishing to regulate markets associated with perceived negative externalities. Consider US Executive Order 12866 of 1993 stating that “each agency shall assess both the costs and the benefits of the intended regulation and, recognizing that some costs and benefits are difficult to quantify, propose, or adopt a regulation only upon a reasoned determination that the benefits of the intended regulation justify its costs.” Violence is an important social cost to be accounted for in the cost-benefit analysis of market control policies. In the absence of adequate enforcement capabilities, addressing unwanted externalities with overly restrictive regulations may end up exacerbating social losses."

No comments: