The Downward Spiral

Jeremy Greenwood, Nezih Guner, and Karen A. Kopecky
Working Paper 2022-4
February 2022

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Abstract: To analyze the opioid epidemic, we construct a model where individuals, with and without pain, choose whether to misuse opioids knowing the probabilities of addiction and dying. These odds are functions of opioid use. Markov chains are estimated from the US data for the college and non–college educated that summarize the transitions into and out of opioid addiction as well as to a deadly overdose. We construct a structural model that matches the estimated Markov chains. We also examine the epidemic’s drivers and the impact of medical interventions.

JEL classification: D11, D12, E13, I12, I31, J11, J17

Key words: addiction, college/non–college educated, deaths, fentanyl, Markov chain, medical interventions, opioids, OxyContin, pain, prices, structural model

Francesco Chiocchio, Michele Federle, and Jordan Herring provided excellent research assistance. This working paper is a preliminary version of the research. The views expressed here are those of the authors and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the authors' responsibility.

Karen Kopecky is with the Federal Reserve Bank of Atlanta and Emory University. Jeremy Greenwood is with the University of Pennsylvania. Please address questions regarding content to Nezih Guner, ICREA and Universitat Autonoma de Barcelona.

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