Spillover Effects of the Opioid Epidemic on Consumer Finance
Western Finance Association Annual Meeting Paper, 2019
40 Pages Posted: 4 Feb 2019 Last revised: 8 Nov 2019
Date Written: November 6, 2019
Appendix available at https://ssrn.com/abstract=3324720.
I examine the impact of the opioid epidemic on subprime auto lending. Using a difference-in-differences framework, I find that county-level increases in opioid abuse cause an increase in loan defaults. Moreover, I find that traditional credit scoring attributes (e.g., FICO score) fail to predict loan performance deterioration associated with opioid addiction. The resulting higher default rates and weaker predictive performance of traditional credit measures generate a negative externality for borrowers in opioid-afflicted areas, as evidenced by 4.4% higher loan costs for subprime borrowers.
Keywords: opioid crisis, marijuana, subprime, auto lending, household finance
JEL Classification: D14, D82, G29, I15
Suggested Citation: Suggested Citation