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1 MBA 211 GAME THEORY FINAL PROJECT: Mexican Drug War CASUAL GAMERS DERGAL | LIN | ROJCHAICHANINTHORN | VILLARICA2 Introduction Mexico is one of several countries that are notorious for drug trafficking organizations. The Mexican government, led by President Vincent Fox in 2000, has waged a war with major cartels as a means to cope with international pressure and enhancing the wellness of the Mexican population. On the one hand, the government is considered to be doing the right thing for the country as drug trading usually comes with significant social costs including crime, corruption, terror, and violence which adversely affect human rights situation in Mexico. The government also experiences a significant loss in tax revenues as these activities are not legitimate businesses. On the other hand, the war and export limitation also come with tremendous social costs as more people are addicted to the substances while drugs are trapped in the country. The government budget has also been depleted while there is no sign that the war is going to end. In addition, one can argue that the overall country’s incomes are lower when the drug export is limited. Game theory will help us evaluate whether the Mexican government has made the best decision in going into the war. Our hypothesis is that fighting may not be the best alternative that maximizes the payoff for the government and public interests. Rather, the benefits from accommodating the drug trading may outweigh the costs of having the war. Background The Mexican drug war is a conflict taking place between rival drug cartels and the government forces in Mexico. Although Mexican drug cartels, or drug trafficking organizations, have existed for a few decades, they have become more powerful since the demise of Colombia's Cali and Medellín cartels in the 1990s1. Mexico is used as a transshipment point from Colombia to the U.S. and Mexican drug cartels now dominate the wholesale illicit drug market in 1 “Mexican Drug War”, Wikipedia (accessed May 11, 2010). 3 North America.2 Drug traffickers from Mexico had established an infrastructure and collaborated with the Colombia‐based traffickers. The Mexican gangs were given 35 to 50 percent of each cocaine shipment in return. Even though there are seven major cartels in Mexico, the Sinaloa Cartel and the Gulf Cartel have taken over trafficking cocaine from Colombia to the worldwide market. Due to international pressure and commitment to stop the drug trafficking, ex‐President Vincente Fox announced a war on drugs in 2000 by sending troops to the border areas between the U.S. and Mexico which led to a surge in violence. In 2006, the subsequent administration led by President Felipe Calderón sent 6,500 federal troops to retaliate against the cartel violence which is regarded as the starting point of the war between the government and cartels. As time progressed, Calderón continued to escalate his anti‐drug campaign, in which there are now about 45,000 troops involved in addition of state and federal police forces. This crackdown has put the total number of deaths nationwide at 22,700 since 2006. The war has been prolonged without any sign of success from either side3. The drug war is not only the fight between the government and the two cartels, but it is also the fight between the two major cartels (Sinalua Cartel vs. Gulf Cartel). President Calderón claimed that cartel‐on‐cartel violence accounts for 90 percent of the causalities in the drug war4. The two cartels have not achieved coordination in response to the government army forces. Instead, they each act independently in hopes of maximizing their own profits. Signaling from the Mexican Government The Mexican government has strongly signaled its stance on drugs to the cartels during the current crisis. Cartels may suspect that President Calderón is not truly committed to the war, 2 Cook, Colleen W., ed. (October 16). “Mexico Drug Cartels”. CRS Report for Congress. Congressional Research Service. p.7. 3 “Cuernavaca new front in Mexico drug war”, Los Angeles Times, April 22, 2010 (accessed May 12, 2010). 4 ibid. 4 similar to past regimes that have turned a blind eye to the cartels, President Calderón has publicly and frequently vowed to end the drug war by 2010 on numerous media sources. On top of being visible, the Mexican government’s signal is also a costly one as the government has spent about $7 billion5 on top of its normal public security since December 2006 to defeat the world’s most powerful drug gangs. Moreover, with the $1.6 billion aid package from the U.S. government over the next three years6, the Mexican government can signal to the cartels that its cost of ending the drug problem is different than those spent by the previous regimes. Despite the strong signaling of commitment from the Mexican government, however, the cartels understand that such commitment can only last until 2012. Since Mexican presidents serve a single six‐year term, the cartels have the option of enduring the crackdown until President Calderón’s term ends in 2012. As long as the cartels can ride out the current troop deployment, they will have a chance to influence the new government to forego the strict drug enforcement in two years. Therefore, it is necessary for us to look past the government’s current commitment and analyze which options the government has to address the drug war. Design of the Game Tree In order to understand the fundamental issues and to predict the outcome of the drug war using the tools of game theory, we followed the following steps: • Identify the key players in the drug war game, • Identify the strategies available to each player, • Identify the factors that contribute to each player’s payoffs, and • Formulate mathematical formulas that a player may use to determine the payoffs for different outcomes. 5 “Mexican president: We’re not losing drug war”, MSNBC.com, February 26, 2009 (accessed May 11, 2010). 6 “US vows help for Mexico drug war, Aljaeera.net, March 24, 2010 (accessed May 11, 2010). 5 Key Players in the Drug War Game Based on the background information that we collected, we identified three key players in the drug


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