What Fueled the Illicit Opioid Epidemic?

Abstract

In recent years, illicitly produced opioids—primarily heroin and fentanyl—have surpassed prescription opioids as the leading cause of overdose deaths in the United States. We identify a previously unexplored driver of this transition: heroin potency shocks resulting from both the integration of heroin supply chains in Mexico and the adulteration of heroin with fentanyl. Using a difference-in-differences framework that exploits the fact that white powder heroin markets were exposed to these potency shocks while black tar heroin markets were not, we estimate that they increased heroin and fentanyl death rates by approximately 230% and 890%, respectively, from 2012 to 2019. Previously studied legal market interventions cannot explain these effects, and our findings provide new insight into key aspects of the evolving epidemic that were thus far unexplained. We conclude that heroin potency shocks are a major determinant of the transition to the illicit opioid waves of the epidemic.

Keywords: overdose epidemic, illicit opioids, segmented market

JEL Classification: H1, I1, K4