The reply to the response to the criticism of the original (updated x2)

As most of you will know, on Monday, BERL released a statement rejecting criticism of their alcohol study. Now Matt and Eric have completed their reply, available in full here (pdf) .

Eric outlines the highlights here. To me the two most important responses from Matt and Eric are to do with the consideration or non-consideration of benefits in the BERL report and the issue of rationality.

First benefits,

They say that we misinterpret their brief and consequently fault them for things that were never within their remit: specifically, that they do not include the benefits of alcohol.

It is certainly true that benefits were not within the RFP. We noted as much throughout our report, and in our executive summary. However, counting benefits as being precisely equal to zero is what allows BERL to count private costs as social costs. As BERL correctly notes at page 173 of their report:

When measuring the social cost of harmful AOD use, known private costs should generally be excluded…because private costs are offset by private benefits, so there is no net social cost

They there cite Collins and Lapsley, their primary source, as warning against the counting of private costs. They then go on:

In the case of harmful drug use, however, individual decisions are not necessarily made on a rational basis, that is, a decision where the consumer equates their costs and benefits. We argue that the consequences of irrational consumption decisions lead to private costs that are borne by the rest of society, and hence should be included as social costs… We assume that it is irrational to drink alcohol to a harmful level and that harmful alcohol use has zero private benefit.

Without that assumption, BERL could not count private costs as socially relevant. Their entire method hinges critically on that they have decided to assume zero gross benefits to drinkers of their drinking. So while benefits were outside of the RFP, they have taken a very strong position on the absence of benefits: a position without support in the economic literature. It consequently is fair game to critique BERL for counting the benefits as being equal to zero. And we do not understand how BERL can say with a straight face "we cannot accept criticism for not covering issues that were outside the project's brief" when their entire method is built on their having brought it into the project's brief.

If benefits are outside the remit, the proper approach is to consider only external costs. At minimum, BERL should have apportioned its cost tally between private and external costs. Instead, they termed all costs as social costs. (Emphasis added.)

Second, the response to the often repeated claim about rationality,

BERL concludes by rehashing their favorite trope: world-view and rationality. Never mind that we have, ad nauseum, shown that none of our results hinge on assuming perfect information, perfect foresight, or perfect rationality. The prior link is the most exhaustive coverage, but the same issue has been covered here and here as well. And I re-iterated it at the NZEA conference with both Nana and Slack in attendance. Instead of providing any reason why the analyses above are wrong, BERL instead reiterates the perfect rationality tropes and throws in personal attacks by suggesting that we think drink driving and murder are perfectly ok.

I had wondered earlier about the claim BERL made about not providing policy analysis. I wrote,

They are not providing policy analysis? Why does he [Slack] think the Ministry and ACC asked for the study if not for policy purposes? What other purpose could it have? And note the use of the report by the Law Commission. If the BERL report isn't providing policy analysis, why haven't they not pointed out this fact given that the Law Commission seems to very clearly want to use it for policy analysis purposes?

Matt and Eric close their reply with

Most seriously, BERL has not explained what policy makers can do with a cost report that by BERL's admission has no policy relevance absent benefits. Without this explanation, we are left to observe that the methodology used by BERL produced very large headline cost figures, their report repeatedly mischaracterised those costs as welfare measures, that these costs were misinterpreted by at least one group of policy makers and BERL did not to our knowledge make any attempt to correct this misinterpretation until after our critique of their work was released and picked up by the mainstream media. It is this non-response by BERL that motivated our review. Identifying a use for BERL's report on the important issue of alcohol misuse is a matter that remains unexplained.

Read both the highlights here and the full 10 page reply here (pdf). Note that the full reply includes a summary of issues that Matt and Eric have raised that BERL have so far failed to address.

Update: BK Drinkwater notes Hurly-BERLy: Burgess And Crampton Respond.

Update 2: Kiwiblog has More on BERL. DPF writes

This raises to me the question of why the hell did the Government spend $135,000 on a report that won’t be of great use for decision makers, as it deliberately ignores benefits. I’m not angry at BERL - I’m angry at the Ministry of Health and ACC for wasting our money.