The Downward Spiral: A Macroeconomic Analysis of the Opioid Crisis

Greenwood, Jeremy; Guner, Nezih; Kopecky, Karen A.

doi:10.26509/frbc-wp-202418

Working Paper

The Downward Spiral: A Macroeconomic Analysis of the Opioid Crisis

Abstract: There have been more than 700,000 opioid overdose deaths since 2000. To analyze the opioid epidemic, a model is constructed where individuals choose whether to use opioids recreationally, knowing the probabilities of addiction and dying. These odds are functions of recreational opioid usage. The model is fit to estimated Markov chains from the US data that summarize the transitions into and out of opioid addiction as well as to a deadly overdose. The epidemic is broken down into two subperiods: 2000-2010 and 2010-2019. The opioid epidemic's drivers, their impact on employment, and the impact of medical interventions are examined. Lax prescribing practices and misinformation about the risk of addiction are important drivers of the first half of the epidemic. Falling prices for black-market opioids combined with an increase in their lethality are found to be important for the second half.

Keywords: addiction; college/non-college educated; deaths; employment; fentanyl; Markov chain; medical interventions; opioids; OxyContin; pain; prices; prescribing practices; state-contingent preferences; structural model; subjective and objective beliefs;