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The Cost of Cost Studies

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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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  • Eric Crampton & Matt Burgess & Brad Taylor, 2011. "The Cost of Cost Studies," Working Papers in Economics 11/29, University of Canterbury, Department of Economics and Finance.
  • Handle: RePEc:cbt:econwp:11/29
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    File URL: http://www.econ.canterbury.ac.nz/RePEc/cbt/econwp/1129.pdf
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    References listed on IDEAS

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    1. 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.
    2. 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.
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    6. 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.
    7. 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.
    8. Margaret Giles & Anh T. Le, 2007. "Prisoners' Labour Market History and Aspirations: A Focus on Western Australia," The Economic Record, The Economic Society of Australia, vol. 83(260), pages 31-45, March.
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    12. 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.
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    More about this item

    Keywords

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

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • J17 - Labor and Demographic Economics - - Demographic Economics - - - Value of Life; Foregone Income
    • A11 - General Economics and Teaching - - General Economics - - - Role of Economics; Role of Economists

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