Bidding up blood

Mexican drug cartels, which control the tremendously lucrative flow of drugs into the US, have over the past several years begun to kill civilians with impunity. Bodies are displayed in public, severed limbs have been tossed onto dance floors, and the total body count continues to rise.

Until recently, civilians and children were off limits in the cartels’ informal codes of honor. The willingness to kill civilians was a signal of ruthlessness, to inform citizens and each other who is winning the war[1].

As of 2010, the Mexican drug cartels have formed two tenuous alliances against each other, one composed of the Juárez Cartel, Tijuana Cartel, Los Zetas Cartel and the Beltrán-Leyva Cartel, and the other, the Gulf Cartel, Sinaloa Cartel and La Familia Cartel [2].

To see how the two alliances might be bidding up the violence, we can first model the civilian killings as an all-pay auction. After all, the cartel incurs some cost for each civilian it kills regardless of whether it wins, and the alliance that has the most kills at the end of each period becomes the more feared of the two among civilians.

In the classic War of Attrition game, the only Nash equilibrium outcomes are that one player bids 0 and the other bids V, the value of the territory under dispute for the period. This implies that we should see in any given time period a large number of killings by one alliance and none by the other, and perhaps the territory would switch hands from period to period (as is one solution for repeated Battle of the Sexes). The expected utility for each alliance should be 0. Alternatively, each cartel has a probability distribution over [0,N] for when it will stop killing civilians. If this is a good model, then the increase in killings might be explained by the decrease in cost of killing civilians (law enforcement is getting less effective).

In the war of attrition game, once both players have made a positive bid, any victory will be a Pyrrhic victory — the expected payoff will be negative. Consider the classic example of the all-pay auction for a $20 bill — if one player bids $20 and the other, $0, they both get a payoff of 0. If one bids $20 and the other, $2, then the player who bids $2 will be forfeiting $2 anyway and might as well bid $22 and win the money. But, now the first player is out $20 — he would lose less if he could get by with winning with a bid less than $40. At some point one player should just take the hit and exit with a negative payoff.

So, the body count continues being bid up as long as both alliances continue to kill civilians on every turn — and this is in fact the case. One explanation might be that the killings are not simply a signal to the civilian population, but also a signal to the other alliance.

We can consider a three-period game:

  1. Each alliance finds out whether it is strong or weak
  2. Given the first, each sends a signal (kill many or kill few)
  3. Each decides whether to attack the other, or to defend. Nonaggression only occurs when both defend.

Each alliance must assert that it is “Strong” type rather than “Weak” type in order to maintain a foothold on the piece of territory. If a strong alliance believes the other alliance is weak on a period, it should attack and take over, since the weaker alliance cannot afford to retaliate.

Alliance j is strong
Attack Defend
Attack -2,V -2,V
Defend -2,V 0,0
Fig. 1: If Alliance i is weak, j is strong
Alliance j is weak
Attack Defend
Attack -1,-1 -1,-1
Defend -1,-1 0,0
Fig. 2: If both are weak
Attack Defend
Attack -2,-2 -2,-2
Defend -2,-2 0,0
Fig. 3: If both are strong

We see that if you are weak, your subgame perfect equilibrium strategy in the last stage is to defend regardless of your opponent’s strength. What signal should you send? Since killing might be costly for a weak alliance, a strong alliance will never send a signal that it is weak (killing few people). Therefore, if the opponent receives the signal that few civilians were killed, he knows that this is a credible signal of weakness.

A weak alliance might signal from the set {many kills, few kills}. Since the players are in identical situations at t=0, their probability p that each will be strong or weak, the probability q that they will give a false signal if weak, and the additional cost c to a weak player giving a high kill signal will be the same. Expected payoff for the weak alliance if it sees a high kill signal is

(q)[mi(strong|many)U(strong, many, defend)+mi(weak|many)U(weak, many, defend)-c]+(1-q)(-2)

= (q)mi(strong|many)[mj(strong|many)(0)+mj(weak|many)(-2)-c]+mi(weak|many)(0)+(1-q)(-2)

= (q)mi(strong|many)[mj(weak|many)(-2)-c]+(1-q)(-2)

It turns out that if sending a false signal is costless, then q is maximized at 1 and we have a pooling equilibrium. If it is costly enough, then there is a separating equilibrium (weak alliance sends low signal, strong sends high signal). What it means for our cartels is that as long as there is a pooling equilibrium, both sides will definitely enter a war of attrition and bid up the body count even beyond their valuations for the territory. It is when the cost of killing just one civilian becomes high enough that it creates a separating equilibrium that the weak alliance doesn’t kill anyone, and the strong alliance kills one[3]. Needless to say, without an honor code to raise this cost, and given the state of Mexican law enforcement, this is quite unlikely.

Thanks to Jeffrey Kang for bouncing ideas around with me.
————————-
[1] http://www.washingtonpost.com/world/mexican-drug-cartels-targeting-and-killing-children/2011/04/07/AFwkFb9C_story.html
[2]”Violence the result of fractured arrangement between Zetas and Gulf Cartel, authorities say”. The Brownsville Herald. March 9, 2010. Retrieved 2010-03-12.
[3] Why one? Because people are discrete. If the separating equilibrium were at 2 kills, then 1 kill might be a possible low signal, in which case the players may enter a war of attrition anyway.

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