Research

Working Paper

• The Opioid Crisis and Secondary Markets: Evidence from a Laboratory Experiment (with Daniel Houser); under review.

  The opioid crisis is responsible for hundreds of thousands of deaths and trillions of dollars in costs. The secondary market for opioids contributes substantially to those numbers. While shutting down the secondary market can alleviate the health threat induced by the drug diversions, it could also trigger increased unnecessary prescriptions, leaving the welfare consequences of closing secondary market distribution ambiguous. Drawing on Schnell’s (2017) model of secondary markets and the opioid crisis, we design a laboratory experiment to investigate the effect of secondary markets on patient and physician behaviors. We find that, as compared to when the secondary market is absent, in the presence of a secondary market patients visit physicians more frequently and physicians provide more prescriptions. Consequently, we find that shutting down this distribution channel reduces total consumption of opioids, and positively impacts overall health outcomes. Our results provide clear evidence that policies aimed at restricting secondary markets would significantly contribute to mitigating the opioid crisis.

• Quotas and Opioid Crisis: An Experimental Analysis (with Daniel Houser, Joachim Winter).

  The opioid crisis is responsible for hundreds of thousands of deaths and trillions of dollars in costs. Over-availability and over-accessibility of opioids due to the over prescription of physicians contribute substantially to those numbers. In response to the current trend of decreasing prescriptions each year, the Drug Enforcement Administration (DEA) has embarked on a campaign to reduce the Aggregate Production Quota. However, the way behaviors of physicians and patients might change with reduced quotas remains unclear. Drawing on Schnell’s (2017) model of secondary markets and based upon our previous findings of over prescriptions when the secondary market is present (Deng and Houser, 2021), we design a laboratory experiment to investigate how the quotas affect patient and physician behaviors. We find that when quotas are present, patients visit physicians less frequently and physicians become stricter in prescribing than in the absence of quotas. Consequently, we find that introducing quotas reduces total consumption of opioids, and positively impacts overall health outcomes. Our results provide rigorous evidence that quota policies aimed at reducing the total supply can contribute significantly to mitigating the opioid crisis.

Next Directions for Future Work

• Price discovery on the black market

  As found by Currie and Schwandt (2021), Cutler and Glaeser (2021), and Mulligan (2000), lower prices combined with easy access to opioids were the main drivers of the opioid crisis. What remains unknown, however, is whether prices will decrease due to the over-availability of prescription opioids. Although, in general, supply and demand determine the price such that the higher the supply, the lower the price would be, the positive interconnection between supply and demand in opioid abuse due to its addiction feature makes this problem complicated. By exogenously changing the level of supply while making addiction level and price on the secondary market endogenously determined by the prescription behavior of the physician and the consumption (selling) decision of the patient, we untangle the myth of how supply influences the demand and the price of the prescription opioids on the black market. Suppose the easy access to prescription opioids due to over-availability does not increase the number of addiction population. In that case, the demand on the secondary market will not change, while the increased supply will reduce the price on the secondary market. On the other hand, if easy access expands the population of addicted opioid abusers, the increased demands might cancel the effect of increased supply and result in high or unchanged prices on the secondary market. The finding of this paper would shed light on understanding the mechanism behind the price of the black market for controlled substances with addictive features.

• Prescribing opioids: Factors driving decision making. A discrete choice experiment

  The presence of the secondary market for prescription opioids offers a channel for drug diversions, and it has been debated regarding its role in physicians' over-prescription behavior. On the one hand, the concern of sellers regarding their behavior of diverting the drugs on the secondary market would facilitate the physician to prescribe more cautiously. On the other hand, the concern on buyers' accessibility to the drugs on the secondary market and the switching behavior to more dangerous illicit manufactured drugs might increase physicians' inclination to over-prescribe. By implementing a discrete choice experiment facing real physicians, the findings of this paper regarding which concern dominates the physicians' minds when prescribing had significant implications for policymakers to figure out the effect of the secondary market on physician’s prescription behavior and the mechanism behind the over-prescription behavior in the current natural environment where secondary market is present. Suppose that the concern on buyers' side facilities over-prescription behavior, it would rationalize the over-prescription behavior of even the altruistic physicians and urge the implementation of the demand side policies like Medication-Treatment-Assistant, as it would largely dispel the physician’s concerns on buyers switching behavior.