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Spillover Effects of the Opioid Epidemic on Consumer Finance

Published online by Cambridge University Press:  24 November 2022

Mark Jansen Open the ORCID record for Mark Jansen [Opens in a new window]
Mark Jansen*
Affiliation:
University of Utah Eccles School of Business
*
[email protected]
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Abstract

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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 weak predictive performance of traditional credit measures and the resulting higher default rates generate a negative externality for borrowers in opioid-afflicted areas, as evidenced by 5.7% higher loan costs for subprime borrowers.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 58 , Issue 6 , September 2023 , pp. 2365 - 2386
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (https://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2022. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

For helpful comments, the author thanks an anonymous reviewer, Mara Faccio (the editor), John Griffin, Marlene Plumlee, Matt Ringgenberg, as well as seminar participants at the 2019 WFA Annual Meeting, 2020 IBEFA Annual Meeting, 2019 Financial Intermediation Research Society (FIRS) conference, 2020 SFS Cavalcade, 2019 UT Dallas Fall Finance Conference, Brigham Young University, Caltech, U.S. Securities and Exchange Commission (SEC), and the University of Utah. The author declares that he has no relevant or material financial interests that relate to the research described in this article.

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