Friday, 19 June 2009

Narrow view of the world?????

From Newstalk ZB
Economic think-tank BERL says critics of its report into the social cost of alcohol have a very narrow view of the world.

Economists Eric Crampton and Matt Burgess have labelled the government report as grossly exaggerated after it put the social cost of alcohol at $4.79 billion a year.

They say it was based on bizarre methodology which assumed problem drinkers are incapable of knowing what's good for them.

But BERL Chief Economist Ganesh Nana says the methodology is internationally accepted and more realistic than their critics'. He says their view that consumers are rational beings who make all their decisions with all the information at hand is a narrow way of looking at economics.

Mr Nana says BERL stands by its report.
Internationally accepted by whom? Berl’s report can be reasonably characterized as a New Zealand implementation of a methodology developed by Professors Collins and Lapsley, cited over 100 times in the Berl report. These same authors provided the external peer review of the report. This is being internationally accepted?

And as for realism, just what form of utility function do you need to give the welfare results that Berl seem to be assuming? Berl assumes all harmful alcohol and drug consumption is irrational. Irrational consumers are incapable of detecting private costs in excess of private benefits. To the extent those private costs exceed benefits, they are counted as social costs. In addition they assume that irrational consumers enjoy zero gross (not net) benefits, meaning all private costs are counted as social costs. The second and third assumptions are not justified – they are simply asserted by Berl. This is realism?


Brad Taylor said...

It would be interesting to hear a substantive response rather than accusations of narrow-mindedness. I don't see how BERL could possibly justify their assumptions. They need to brush up on their Demsetz (1969), at the very least.

Paul Walker said...

Bard: "I don't see how BERL could possibly justify their assumptions."

Take a look at Eric's latest posting on production costs and his comments on the utility function BERL has to be using. I don't think they can justify whatever function they are assuming.

ben said...

But BERL Chief Economist Ganesh Nana says the methodology is internationally accepted.

Ganesh is no doubt correct. There are people not in New Zealand who accept BERL's methodology. Dare I say it, you'll find a complete list of them in BERL's references :-)

Another Tui for Ganesh?