The economics of addiction

Professor of Economics Jeremy Greenwood’s research is uncovering information about the opioid crisis, its effects on the labor shortage, and the law of unintended consequences.

In 1999, fewer than 10,000 people died from causes related to drug overdoses in the United States. In 2021, the number was over 106,000.

Professor of Economics Jeremy Greenwood in the School of Arts & Sciences is working with Nezih Guner of Universitat Autonoma de Barcelona, Catalan Institution for Research and Advanced Studies, and Barcelona School of Economics; and Karen A. Kopecky of the Federal Reserve Board–Atlanta and Emory University, to study the numbers behind these numbers.

Jeremy Greenwood.
Professor of economics Jeremy Greenwood. (Image: Courtesy of OMNIA)

One of their working papers, “The Downward Spiral,” tries to answer a question that stretches beyond drug addiction: Why do rational people make risky choices?

“Why would they rationally elevate themselves to misusers—someone who doesn’t follow the prescription or who doesn’t have a prescription in the first place—recognizing that they could become addicted, and then if they become addicted, they could die?” Greenwood asks.

Greenwood says there are three major hypotheses about addiction postulated by economists in the last 10 years: working-age white men and women without four-year college degrees were dying of suicide, drug overdoses, and alcohol-related liver disease; these have come to be called “deaths of despair.” There is also “lethal unemployment bonuses,” which refers to the idea that financial support from the government subsidizes drug use for some. Others suggest that the crisis was driven by supply: cheap drugs becoming widely available. Greenwood believes a combination of the three has contributed to the current crisis.

In “The Downward Spiral,” which covers the period from 2000 to 2019, the authors used a computer model to follow the choices people make. “Before 2010, Purdue Pharma was selling Oxycontin and claiming that it wasn’t very addictive,” Greenwood says. “They cited a study about opioid addiction, but the study actually said if you used opioids in the hospital under a doctor’s directions, they wouldn’t be addictive. So before 2010, I think it’s unclear if people knew whether it was addictive or not.”

In 2007, Perdue lost a lawsuit. “After that, I think you can assume that people actually knew what the odds of addiction and the odds of death were,” says Greenwood. In fact, the team’s research showed that during that period, people underestimated the odds of dying from opioid addiction by just 13%. So why did people continue to become addicted?

Prices dropped, says Greenwood. “The government and various insurance programs paid for opioids. And then we had fentanyl, a synthetic opioid, that really lowered the price. Prices fell legally maybe 350%, and illegally maybe 150%. So that’s a big stimulus to people taking opioids.”

“If you have an opioid use disorder, your labor force participation rate is 73% of a non-user. And if you are a meth user, it’s even worse: 67% of a non-user,” Greenwood says. “Our hypothesis was that, if the pandemic caused an increase in substance abuse, then you should see a decrease in labor force participation.”

Homepage image: A volunteer cleans up needles used for drug injection that were found at an encampment in Everett, Washington. (Image: AP Photo/Ted S. Warren)

Read more at OMNIA.