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The Cost of Cost Studies

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  • Eric Crampton

    ()
    (University of Canterbury)

  • Matt Burgess
  • Brad Taylor

Abstract

We review methods and assess the policy influence of a series of publiclyfunded Cost of Illness studies, mostly published since 1990. Our analysis shows that headline cost estimates, including the influential paper by Collins and Lapsley (2008), depend on an incorrect procedure for incorporating real world imperfections in consumer information and rationality, producing a substantial over-estimate of costs. Other errors further inflate these estimates, resulting in headline costs that are unrelated to either total economic welfare or GDP and therefore of no policy relevance. Counting only external, policy-relevant costs not only deflates overall figures substantially but also results in rank order changes among cost categories. Despite this, Cost of Illness studies appear effective in mobilizing public opinion towards increased regulation and taxation that is not justified by an expected increase in economic welfare: this is the cost of cost studies.

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File URL: http://www.econ.canterbury.ac.nz/RePEc/cbt/econwp/1129.pdf
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Bibliographic Info

Paper provided by University of Canterbury, Department of Economics and Finance in its series Working Papers in Economics with number 11/29.

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Length: 52 pages
Date of creation: 01 Jul 2011
Date of revision:
Handle: RePEc:cbt:econwp:11/29

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Keywords: costs and benefits of alcohol usage; alcohol policy; Australia; New Zealand; adequacy of consultancy reports;

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  1. Vernon L. Smith, 2003. "Constructivist and Ecological Rationality in Economics," American Economic Review, American Economic Association, vol. 93(3), pages 465-508, June.
  2. Elvira Lima & Teresa J. Esquerdo, 2003. "The economic costs of alcohol misuse in Portugal," NIMA Working Papers 24, Núcleo de Investigação em Microeconomia Aplicada (NIMA), Universidade do Minho.
  3. Niclas Berggren, 2012. "Time for behavioral political economy? An analysis of articles in behavioral economics," The Review of Austrian Economics, Springer, vol. 25(3), pages 199-221, September.
  4. Thomas Leonard, 2008. "Richard H. Thaler, Cass R. Sunstein, Nudge: Improving decisions about health, wealth, and happiness," Constitutional Political Economy, Springer, vol. 19(4), pages 356-360, December.
  5. Steven D. Levitt & John A. List, 2007. "What Do Laboratory Experiments Measuring Social Preferences Reveal About the Real World?," Journal of Economic Perspectives, American Economic Association, vol. 21(2), pages 153-174, Spring.
  6. Matt Burgess & Eric Crampton, 2009. "The Price of everything The Value of Nothing: A (Truly) External Review Of BERL’s Study Of Harmful Alcohol and Drug Use," Working Papers in Economics 09/10, University of Canterbury, Department of Economics and Finance.
  7. Caplan, Bryan, 2001. "What Makes People Think Like Economists? Evidence on Economic Cognition from the "Survey of Americans and Economists on the Economy."," Journal of Law and Economics, University of Chicago Press, vol. 44(2), pages 395-426, October.
  8. M. Christopher Auld, 2005. "Smoking, Drinking, and Income," Journal of Human Resources, University of Wisconsin Press, vol. 40(2).
  9. J. Doyne Farmer & John Geanakoplos, 2009. "Hyperbolic discounting is rational: Valuing the far future with uncertain discount rates," Levine's Working Paper Archive 814577000000000356, David K. Levine.
  10. Pinka Chatterji & Jeffrey DeSimone, 2006. "High School Alcohol Use and Young Adult Labor Market Outcomes," NBER Working Papers 12529, National Bureau of Economic Research, Inc.
  11. Anh Tram Le & Margaret Giles, 2006. "Prisoners' Labour Market History and Aspirations: A Focus on Western Australia," Economics Discussion / Working Papers 06-12, The University of Western Australia, Department of Economics.
  12. Eric Rasmusen, 2008. "Some Common Confusions about Hyperbolic Discounting," Working Papers 2008-11, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
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