presents evidence that compliance is greater among people whose income is directly reported to the IRS and who therefore have fewer opportunities to cheat.

We contribute to this literature by cleanly identifying the effect of enforcement on illegal behavior in the context of the war on drugs and illicit crop cultivation in Colombia. The strength of our empirical exercise relies not only on our identification strategy but also on the precision of our data on illicit crop cultivation and enforcement activities. In particular, we observe satellite data on coca cultivation in small 1-square-km cells and information on the exact location of aerial spraying campaigns, closely monitored by the army and police using GPS devices that are built in the aircraft used in the aerial spraying program in Colombia. Consistent with the previous findings on the literature, our results suggest that farmers respond to a greater likelihood of enforcement in an area by reducing illicit coca cultivation there, but we show that the effects are too small to make the spraying program a cost-effective policy to reduce cocaine supply.

# _Literature on the Efficacy of Anti-drug Interventions_

Second, our paper is also related to the applied economics literature on the cost-effectiveness of anti-drug policies. The main challenge in this area is that anti-drug interventions typically take place on a large scale; hence, it is difficult to obtain appropriate counterfactuals. One approach, followed by Mejía and Restrepo (2011, 2013), is to construct and calibrate economic models of illegal drug markets to understand and quantify the main forces and determinants of the cost-effectiveness of different supply-reduction strategies. They find that spraying illicit crops is costly and ineffective relative to policies aimed at seizing drug shipments. However, both strategies are costly relative to demand reduction policies in consumer countries.

Other papers in the literature have focused on estimating the impact of spraying campaigns on coca cultivation by using geographic and time variation. For example, Moreno-Sanchez et al. (2003) and Dion and Russler (2008) use departmental data from Colombia and find a positive correlation between the levels of spraying and the presence of coca crops. However, these results are likely to be driven by simultaneity bias in their estimates. Recent studies have attempted to address these endogeneity concerns. For example, Moya (2005) deals with selection on observables using matching techniques and finds that spraying does not have a significant effect on coca crops in Colombian municipalities. Bogliacino and Naranjo (2012), also exploit within municipality variation and find that eradication does not reduce coca production. They estimate a system of equations in which aerial spraying and cultivation are determined simultaneously, identified by the restrictive assumption that crime rates and the number of internal refugees are uncorrelated with coca cultivation, but do create political pressure for spraying campaigns. Reyes (2014) instruments spraying with the distance to the closest military base and finds evidence that aerial spraying increases illicit crops. However, his results require the location of military bases to be exogenous. A different approach is implemented by Ibañez and Carlsson (2010), who elicit farmers’ preferences over risk and the profitability of other crops by using hypothetical questions. Consistent with our findings and the economic model of crime, farmers in Putumayo claim they would reduce coca plantations if they faced a higher risk of eradication. However, the implied reductions are small, as we confirm using a different methodology. Finally, Rozo (2014) instruments spraying with the interaction of the distance between each 1-square-km cell (or coca producer) and the nearest border of a protected area and U.S. international anti-drug expenditures. She exploits the fact that, by governmental mandate, protected areas cannot be sprayed with herbicides due to environmental and social concerns and finds that aerial spraying has a negative and significant effect on the hectares of coca cropped and their yield. In addition, she documents negative unintended consequences on the socio-economic conditions of coca-producing areas.