An Instrumental Variables Approach to Estimating the Effects of Changes in the Heroin Market on Overdose in the US

We investigate a major supply shock to the US heroin market in the 1990s, the introduction of Colombian-sourced heroin, that led to a substantial rise in heroin overdose admissions. The instrumental variables approach uses the interaction of the timing of the supply shock with city-level pre-shock characteristics that have been shown to facilitate or hinder the introduction of new heroin sources. The estimation strategy allows us to disentangle the causal effects of multiple city-level heroin market factors that are correlated with overdose: the price per pure gram of heroin, the coefficient of variation of purity of heroin, and the proportion of heroin of Colombian origin. We find that changes in the price per pure gram and country of origin have substantial effects on heroin overdose admissions, explaining about two-thirds of the rise in heroin overdoses over the 1990s. The results have important implications for understanding the effects of changing heroin market conditions on the current US heroin epidemic.