Wednesday, 17 June 2009

Reported costs of alcohol abuse "grossly exaggerated" according to economists (updated x10)

The following comes from the Offsetting Behaviour blog:
17 June 2009


Reported costs of alcohol abuse "grossly exaggerated" according to economists

A widely publicised $135,000 government report on the cost of drug and alcohol abuse has been slammed by two economists, who say the report’s findings are grossly exaggerated.

Economists Eric Crampton and Matt Burgess have released a research paper which examines the report, by Wellington economics consultant Business and Economic Research Limited (BERL), after Law Commission President Sir Geoffrey Palmer cited its findings in support of proposed new regulations on alcohol.

“What we found shocked us. BERL exaggerated costs by 30 times using a bizarre methodology that you won’t find in any economics textbook,” Dr Crampton said.
The BERL report was commissioned in 2008 by the Ministry of Health and ACC, and put the annual social costs of alcohol at $4.79 billion. Crampton and Burgess said the net social costs instead amounted to $146 million – 30 times lower than that calculated in the report.

“BERL has virtually assumed its answer. The majority of the reported social costs rest on two very strange assumptions which BERL has asserted without any reason or evidence,” said Dr Crampton said.

“The report assumes that one in six New Zealand adults drinks because they are irrational; that is, they are incapable of deciding what is good for themselves. BERL further assumes that these individuals receive absolutely no enjoyment, social or economic benefit from any of their drinking,” Dr Crampton said.

“These assumptions allowed BERL to count as a cost to society everything from the cost of alcohol production to the effect of alcohol on unpaid housework. That’s bad economics.”

Among other serious flaws, Dr Crampton said the report’s external peer review was done by the authors of the report’s own methodology, important findings in academic literature that alcohol had health and economic benefits were ignored, BERL did not properly warn readers about the limitations of its methodology, and used language in the report that was frequently misleading.

The BERL study caught the economists’ attention when it was cited by the Law Commission as the basis for supporting proposed new taxes and regulations on alcohol.
“We’re doing this because we don’t want to see legislative decisions being misguided by bad research. In our view, the Law Commission should give no weight at all to the findings in the BERL report,” Dr Crampton said.

Dr Crampton stressed their review wasn’t an attack on the “very real” issues of alcohol and drug abuse. “These are deep problems, but rather than being taken seriously they have instead been trivialised by numbers that beg the question,” Dr Crampton said.

The review of BERL’s report is available for download here; supporting calculations available here. The BERL report is available here.

Eric Crampton is Senior Lecturer in Economics at the University of Canterbury. Matt Burgess is a Research Associate at the Institute for the Study of Competition and Regulation. The views expressed solely reflect those of the authors, and do not necessarily represent those of the institutions with which they are affiliated or their constituent members.
Update: Brad Taylor comments on Crampton and Burgess on the BERL Report while BK Drinkwater ponders the Hurly-BERLy of it all.

Update 2: Kiwiblog points out that Alcohol costs grossly exaggerated and Not PC reckons that You’ll never get poor promoting the government line.

Update 3: Eric explains Correcting the BERL report part 1: overview.

Update 4: Not PJ ponders A Report into the Costs of Harmful Economic and Other Social Policy Analysis.

Update 5: Eric now explains more about Correcting the BERL report part 2: Lost output

Update 6: Will de Cleene thinks Das BERL report ist Krap

Update 7: Mitchell Hall at the NBR writes on The cost of getting it wrong: Berl alcohol report fundamentally flawed.

Update 8: Stephen Franks is up for a bit of Biffo on costs-of-alcohol report. He makes a nice poitn when he says
BERL must convincingly answer the criticims (or preferably other economists for them) if their future work is to have credence.
Update 9: Eric continues to discuss Correcting the BERL report part 3: Alcohol Production Costs .

Update 10: More from BK Drinkwater on the Hurly-BERLy with regard to the BERL report and Hurly-BERLy: A Furtive Marxasm Under The Dinner Table.

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