Do costs matter?

By Eric Crampton 21/09/2012

Sandra Jones says that optimal alcohol policy is invariant to measured social costs:

I think Dr Crampton is missing the point. I for one will not vote for (or against) government policy because the costs of death and suffering have been estimated at $5 billion, any more than I would if they were estimated at $10 billion or $100 billion.
As an Australian, I care that alcohol is second only to tobacco as a preventable cause of drug-related death and hospitalisation, with an estimated 3,000 deaths per annum; I care that our emergency rooms are clogged with people suffering from the immediate effects of their, or others, misuse of alcohol; and I care that every year almost 600 Australians aged 65-74 die from injury and disease, and 6,500 are hospitalised, as a result of drinking above the NHMRC guidelines[3].
I also care that 43% of Australians perceived physical assault in a public place to be a problem in their neighbourhood[4]; that alcohol is a significant contributing factor in domestic violence[5]; and that alcohol abuse is an important risk factor for child abuse, maltreatment and neglect[6].
As a parent, I care that 13% of all deaths among Australians aged 14-17 years – that is one per week – are a direct result of alcohol consumption; and that alcohol is responsible for the hospitalisation of 60 teenagers each week.
Perhaps Dr Crampton – and the alcohol industry – could spend a little less time arguing the exact calculation of the financial costs of alcohol and think about the real costs.  I am sure that every parent who has lost a teenager from alcohol misuse would estimate that single cost at much more that $15 billion.
Let’s stop pretending we don’t have a problem with alcohol.

In one important sense, I agree with Sandra. As we wrote in the introduction to our paper:

We argue that the standard economic case for intervention, which relies on identifying instances in which the marginal social costs of consumption exceed marginal private costs, is not established by Cost of Illness studies. First, these studies summarily ignore the differences between marginal and total costs. Even were it the case that total external cost exceeded total collected taxes, feasible interventions including excise tax increases can remain undesirable where marginal external costs are less than the excise rate.

You can have worlds where the measured social costs are orders of magnitude higher than collected excise revenues but no intervention passes cost-benefit analysis because harms are relatively inelastic to intervention; you can have other worlds where the measured social costs are orders of magnitude lower than the collected excise revenues but particular interventions pass cost-benefit analysis because particular categories of harmful activity are relatively elastic to intervention.

The only reason that I started caring about the measure of the total social cost of alcohol use is that bad estimates of it build demand for intervention on what look like sciency economic grounds when the sciency veneer is actually pretty thin. When BERL came out with its big shiny number, I just shrugged – another dodgy number in a world of dodgy numbers. Until Sir Geoffrey started citing it as motivating his call for much tighter regulations around alcohol and BERL’s analysts refused to inform him that their figure was not fit for that purpose.

I’m sure that Sandra Jones’ opposition to alcohol is completely invariant to the measure of the social cost. But I don’t believe that’s true of many voters who are deceived by cost of illness studies that present costs drinkers impose upon themselves as ‘social costs’, which then are interpreted in public debate as costs to the taxpayer.

It’s worth perhaps also having a bit of perspective on where Sandra’s coming from on alcohol, and here I’ll part company with her rather more substantially.

Here’s Hoek and Jones in the Journal of Social Marketing last year. First, some definitions:

The dominant approach focuses on individual-level behaviour change, or what is now described as downstream social marketing. This approach regards behaviour change as voluntary and relies on offers that create greater value than continuation of the risk behaviour. By contrast, “upstream” social marketing focuses on policy and regulation, with the aim of altering environments so these support and promote behaviour change. “Upstream” initiatives have much in common with work public health researchers undertake, suggesting that many benefits could be gained from stronger social marketing and public health alliances.

So upstream social marketing is regulation. Ok. So why do we need that rather than efforts that focus on individual responsibility? Let’s check the section of the paper called “The Myth of Individual Responsibility” for some answers.

By promoting individual behaviour change, downstream social marketing campaigns risk reinforcing the impression that consumers themselves are responsible for their own choices, irrespective of the powerful stimuli that promote and reinforce these. Furthermore, individually oriented actions deflect attention from the companies manufacturing, distributing and marketing products known to cause harmful social and health problems and imply these cannot (and perhaps should not) be held responsible for their products’ effects. Efforts to relocate responsibility back to these corporations thus require environmental changes that both recognise and ameliorate the influence marketing stimuli exert. 

Is this just tobacco and maybe alcohol?

For example, McDonald’s and Coca Cola have undertaken extensive sponsorship of sporting events, from major international gatherings such as the Olympic Games and FIFA World Cup right through to smaller local activities, such as support of junior football codes. These activities indicate their endorsement of sporting activity and exercise, which is clearly part of a healthy lifestyle for all individuals. However, it also supports their claim that no foods are “unhealthy”, that a sensible diet has room for “treat” foods, just as it should also include “everyday” foods, and that the way to enable inclusion of these treat foods is to undertake sufficient exercise. Individuals, therefore, need to manage their diets so these represent an appropriate balance of foods.

This reasoning has a powerful intuitive logic and few would deny individuals have an important role in selecting the foods they consume. However, this argument overlooks entirely the role food companies have in shaping individuals’ food environments.

And individual choice?

…far from limiting individuals’ freedoms, regulation shaping consumers’ choice contexts is actually the means of liberating those environments, thus enabling them to make free choices. Only by balancing environments so the voices of public health are not overwhelmed by the cacophony of commerce can individuals begin to make choices that are in their long-term interests. Without regulation to create these more even choice contexts, consumers faced with unremitting commercial stimuli are, understandably, likely to be swayed by these rather than longer-term social or health interests.

The Ministry of Freedom could maybe be in charge of making sure the choice context is just right.

In a paper section entitled “Tobacco control – daring to dream”, they note how regulatory policies denormalizing tobacco use made downstream social anti-smoking campaigns more effective; this is meant to serve as example for the effectiveness of this partnered approach for other industries.

They conclude:

If high-risk behaviours such as smoking, excessive alcohol consumption and consumption of high fat, salt and sugar foods are to change, social marketers need to recognise, then manage, the environmental determinants of risk behaviour. This implies that they explore upstream measures and work alongside public health researchers to create a context where downstream interventions may flourish. [25] Jochelson (2006) summarised this approach when she argued that: “Legislation brings about change that individuals on their own cannot, and sets new standards for the public good”. Because upstream measures affect the environments that shape and support behaviour, they should be regarded not as constraints diminishing voluntary behaviour but instead as the pre-requisites enabling full and free choices.

It’s like the No Logo movement has bred with the public health movement. Count Chocula should be worried; his days may be numbered.

It’s at least mildly amusing that Jones, who views people as massively subject to advertising in their roles as shoppers, seems to dismiss that voters’ preferences might be corrupted by shonky cost of illness studies.

At least I have a frameworkfor why I worry a lot more about the latter than the former: individuals bear the costs of getting things wrong in their shopping decisions and so pay a bit more attention there than they do when weighing up political choices where each vote has only a trivial chance of changing anything.