But Ross the study we are told is all about costs, so you have to ask, Why are they discussing benefits? Its either a cost study and so no benefits get a mention or its a cost-benefit study in which case you deal with both, properly. Why, if it is out of scope, did BERL assume zero benefits? BERL’s scope argument seems somewhat irrelevant. Note that BERL says, ” The project brief was not to assess benefits…” But then BERL took a position on them, saying benefits are zero. Regardless of the report’s purpose, such a position seems strange and Matt and Eric try to explain why.

Well, it’s clear that BERL think that “harmful alcohol use has zero private benefit”. But alcohol is not just consumed in harmful quanities, and it appears that BERL is aware of this. So I don’t agree with your point. Even if I did agree with it, it’s irrelevant in the context of the BERL study because the study is all about costs. I can see why it’s about costs. I would not expect emergency staff called out to a car accident where the driver, who’s intoxicated, has wrapped himself around a power pole and is on death’s door, asking the guy about the benefits of drinking.

We know that drinking has benefits but we also know that it incurs significant social costs. ACC and the Ministry of Health wanted to quanitfy those costs which is why they commissioned BERL.

If there were no external costs, would Eric support murder? Bizarrely, his answer seems to be yes.”

Ross, you hit it spot on. I (speaking for myself, not Eric) would be fine with murder if there were no external costs. The thing you (and I) don’t like about murder is that it kills someone who didn’t consent to it – that’s the external cost, and the reason it is wrong. It’s not an internal cost because it’s not borne by the actor (the murderer).

If you think there is another reason murder is wrong (other than the externality), I would be interested in hearing it.

Note in suicide, the cost is borne by the actor. However, do note that there are other external costs put on friends and family of the victim/actor. This is usually the reason people give for thinking suicide is wrong (other than the obvious waste of a life).

When measuring the social cost of harmful AOD use, known private costs should generally be excluded (Single et al 2003, Collins and Lapsley 2008). This is because private costs are offset by private benefits, so there is no net social cost. For example, a rational consumer buying alcohol is assumed to know the negative effects of drinking, and weighs the benefits and costs in making their decision. They will choose to consume up to the point where their benefit from consumption matches the full cost of consumption, which they bear privately. In the case of the fully informed rational consumer, the (net) social costs are zero.
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. For example, we estimate that a significant amount of alcohol is consumed by alcohol affected, intoxicated or alcohol-dependant individuals, and as such these decisions are unlikely to be fully rational decisions. Therefore, consumers may bear a greater private cost for their decisions than the perceived private benefits they derive. The additional costs that consumers would not choose to incur if they were rational are borne by the rest of society. These costs are included in our estimate of social costs.
We assume that it is irrational to drink alcohol to a harmful level and that harmful alcohol use has zero private benefit. As such, the 50 percent of harmful alcohol consumption estimated in this study has no private benefit to match the private cost, resulting in a net social cost. These private decisions that lead to social costs are included in our estimates.

In short: the only reason BERL got to count private costs as social costs is because they decided that private benefits equal zero. This is somewhat different from taking no position on benefits or deeming benefits outside of remit.

“This study concentrates on the economic costs of harmful use, and does not explicity estimate the the social impacts of benign or beneficial use. Literature on beneficial use was not specifically reviewed, and estimated impacts of beneficial drug use were not included in this study. However, there are intangible benefits…from non-harmful consumption of alcohol or other drugs. As these impacts are benefits, however, they do not fall within the scope of of this study on harmful drug use.”

That seems pretty clear to me. Which part of that did the media and Treasury find so difficult to understand? Or did neither get to page 8 before they mouthed off?

“My comments were in response to second hand information and as a result I made criticisms of the BERL research that, with hindsight, I would not have otherwise made. I accept that the BERL research is not a full cost/benefit study and regret that the media coverage didn’t adequately convey that BERL worked to a specific brief to research only the costs of harmful alcohol and other drug use. I recognise that this new media attention has placed BERL in a difficult position and apologise for the part that my reported comments played in this situation.”

So the media did a shoddy job of reporting the BERL study. What a surprise. The title of BERL’s study was a dead give away: “Costs of Harmful Alcohol and Other Drug Use”. So it was pretty obvious that BERL did not take account of any benefits. To be sure, the study’s introduction makes mention on several occasions that the study is all about measuring the costs of (ab)using alcohol and other drugs. It’s the media and Treasury that have been negligent here.

On how economists view murder: David Friedman has a very nice argument about it in Law’s Order.

As they point out in yesterday’s response, BERL was only asked to consider costs. But for some reason they went the extra step and looked at gross benefits too, and decided quite inexplicably they are zero (almost) across the board for anyone drinking a bit less than two pints per day on average. Why they didn’t just ignore benefits entirely we don’t know.

We put a section in our critique titled “Is this a cost/benefit study?” which points out all of this and notes the difficulty of counting costs but not benefits when the line between the two becomes blurred.

Note that Easton does not consider any benefits of alcohol consumption, and the paper’s methodology extends to all risky behaviour. Risky behaviour that leads to increased incidence of accidents or death would also create ‘like’ costs (reduction in GDP).

Hence, according to this logic we would not want people to become firemen, ride bicycles, go horse-riding or play rugby because of its social cost.
Hence, the methodology has not been duplicated since 1997.

>If there were no external costs, would Eric support murder? Bizarrely, his answer seems to be yes.

If there were no external costs (ie no negative consequences to anyone at all) then it would not be called murder (supporters of euthanasia dont call it murder for example)

You also have missed that it was the BERL boffins who started this inane argument about the economics of murder

THE SOCIAL COSTS OF TOBACCO USE AND ALCOHOL MISUSE

http://www.eastonbh.ac.nz/?p=59

To a non economist like myself, it seems to me that Crampton and Burgess are living in an ivory tower in La La land.

If the report was only supposed to look at costs rather than benefits, then it should have clearly said so.

That was an admirable response, making your point firmly without resorting to name-calling.

I was typing a response to Ross that was both longer and less clear -I can now safely consign it to oblivion.

To put in bluntly, all disciplines that deal with complex systems use assumptions. I’ve done extinction-modelling for endangered species and these models are riddled with assumptions about the drivers of extinction (and often lack necessary feedbacks). The trick is that in ecology, you make predictions about the probability of persistence over 100 or 1000 years. So, no one is going to know how good these models are until the year 3000.

I might observe that the NZ economist Bil Philips did in fact build a secret radio at great personal risk to himself as a prisoner of the Japanese during WW2. I’m willing to gamble that this was done with real parts, not parts that were assumed to exist.

Oh, right, so economists don’t support laws against murder because, well, murder is wrong and illegal, they support laws against murder because it creates an “externality”. Haha, you’ve got to love economists. It reminds me of the joke about the 3 guys adrift on a liferaft with lots of canned food but no can-opener. While the other two guys are debating how they’re going to opne the cans, the economist says, “Don’t worry guys, let’s just assume we have a can opener”.

If there were no external costs, would Eric support murder? Bizarrely, his answer seems to be yes.