A C I L
A L L E N
C O N S U L T I N G
DISCUSSION PAPER
FEBRUARY 2014
COUNTING
THE COSTS OF
ALCOHOL
POLICY-RELEVANT COSTS
TO AUSTRALIA
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C o n t e n t s
1 Introduction
1
1.1 A framework to estimate the policy-relevant costs of alcohol
consumption
2
1.2 Key definitions in this discussion paper
3
1.3 Summary of policy-relevant spillover costs
4
1.4 Outline of this discussion paper
5
2 Spillover costs of alcohol misuse: models for assessment
6
2.1 A listing of impacts from alcohol consumption
6
2.2 No ordinary commodity
7
2.3 Private and external cost classification of costs
8
2.4 The rationality of drinkers?
9
2.5 Summary of private and spillover cost categorisation
15
2.6 Tangible and intangible costs
15
2.7 Time dimension to measuring the costs of alcohol
17
3 Defining harmful alcohol consumption
3.1 Determining the harms arising from alcohol misuse
19
19
3.1.1 What is the impact of alcohol misuse?
19
3.1.2 When does alcohol consumption begin to incur a social
cost?
19
3.1.3 Determining alcohol-related harm by defined harms
22
3.2 Using thresholds to determine alcohol-related harms
22
3.2.1 Determining alcohol misuse by consumption levels
22
3.2.2 How has alcohol misuse been determined?
23
4 Measuring policy-relevant spillover costs
27
4.1 Considerations when defining policy-relevant spillover costs
27
4.2 Possible policy-relevant spillover cost categories
27
4.2.1 Costs to families
28
4.2.2 Health care costs
30
4.2.3 Workforce labour and productivity
34
4.2.4 Crime
36
4.2.5 Resources consumed in alcohol misuse
40
4.2.6 Child protection services
41
4.2.7 Road accidents
42
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5 Bibliography
47
Consultation questions
50
Appendix A
Concept of a standard drink
A-1
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Introduction
1
ACIL Allen Consulting has been commissioned by the Foundation for Alcohol Research and
Education (FARE) to prepare a discussion paper as part of a broader investigation into the
development of a framework to estimate the policy-relevant costs of alcohol consumption in Australia.
Purpose of discussion paper
ACIL Allen Consulting is seeking feedback from interested individuals, organisations, government
representatives and business on a proposed framework for identifying and measuring the costs of
alcohol misuse that could be adopted in a future study. This discussion paper:

reviews the issues surrounding the assessment of the costs of alcohol consumption, misuse and
harm

identifies the different types of costs from alcohol consumption on individuals, business,
government and the broader community

identifies the ‘policy-relevant spillover costs’ of alcohol misuse

examines the different approaches to measuring the levels of these costs
We have included questions throughout the discussion paper to focus attention on key elements of
the proposed framework. We also welcome feedback on all other aspects of this paper. The
discussion paper can be downloaded from at: http://www.acilallen.com.au/projects/14/healthcare/113/counting-the-costs-of-alcohol-discussion-paper
We invite your feedback on this discussion paper
ACIL Allen invites feedback on this discussion paper, particularly from interested people and
organisations who have worked in or are interested in the costs of alcohol use in Australia. Our
consultation timetable is as follows:

3 February 2014 – open public submissions

20 February 2014 – conducting a workshop

14 March 2014 – close public submissions
How to provide feedback
Feedback on this discussion paper can be provided until Friday 14 March 2014 by:

providing a written submission via:

email: [email protected] or

post: ACIL Allen Consulting, Level 1, 50 Pitt Street, Sydney, NSW 2000

calling ACIL Allen Consulting on (02) 8272 5100

participating in a workshop
Please indicate in your submission/email whether you are writing on behalf of an organisation or in an
individual capacity.
Face-to-face workshop
We will hold a workshop on this discussion paper on 20 February 2014 in Melbourne at:
Mantra Southbank
31 City Road, Melbourne
The workshop is targeted at individuals/organisations who have expertise and an interest in economic
costs studies related to alcohol consumption. Please contact the ACIL Allen team to register for the
workshop.
What happens after you provide feedback?
We will carefully consider all feedback on this discussion paper and develop a framework for
identifying and measuring the costs of alcohol misuse.
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1.1
A framework to estimate the policy-relevant
costs of alcohol consumption
The costs of alcohol consumption are of keen interest to many Australians including
community members and groups, health advocacy organisations, industry, and government.
Numerous studies have been undertaken over the last decade into the costs associated
with alcohol consumption or misuse in various countries (and at the sub-country level)
including Australia.
A wide range of values about the costs of alcohol consumption have been determined
across these studies. Estimates of the annual social (non-private) costs for Australia range
from to $3.8 billion (Crampton et al 2011) to $36 billion (combining the estimates of Collins
and Lapsley 2008 and Laslett et al 2010). Differences in calculated social costs reflect
different views about which costs should be counted and how they should be counted.
Why it is important to understand the level of costs?
It is important to have an understanding of the costs of alcohol consumption. This is
because while different studies came up with different levels of costs, most studies found
that:


the costs from alcohol misuse are substantial; and
the costs and harms go beyond the immediate drinker, often impacting on people other
than buyers and sellers of alcohol in the market.
The prevalence and significance of these costs highlight the need to apply and refine policy
interventions to address and correct spillover costs that are imposed on the Australian
community from alcohol misuse.
Why is there disagreement about the costs of alcohol consumption?
There is disagreement about the costs of alcohol consumption for two key reasons:

the impact of alcohol use and misuse is so multifarious that is difficult to clearly identify
and measure their costs; and

the key point of this paper – there is disagreement about which costs are truly private
and which are spillover (non-private) costs.
Disagreement about which costs are truly private has resulted in studies taking different
types of costs into account. Different combinations of the following have been taken into
account:





the cost of alcohol consumption;
the cost of alcohol abuse;
the cost of alcohol’s harm to others;
the societal costs of alcohol misuse; and
the cost of alcohol abuse to government.
What is the impact of different views regarding which costs are truly
private?
The difference in views about which costs are truly private has had the following impacts on
the approaches researchers have used to calculate the level of social costs.
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
Some researchers have identified and measured community expenditures and losses
that are proportional to alcohol misuse – including some costs borne by the drinker. This
approach has tended to result in a relatively large estimate of social costs.

Other researchers have excluded costs borne by private individuals. This approach has
tended to treat many costs as private leaving a smaller estimate of social costs.
1.2
Key definitions in this discussion paper
It is important to clearly define key concepts used in this discussion paper. We do this
below.
Private costs, social costs, policy-relevant spillover costs and direct
costs to Australian governments
Different studies on the costs associated with alcohol consumption have adopted different
definitions of the ‘private’ and ‘social’ costs of alcohol consumption. Different definitions of
private and social costs have directly impacted which categories of costs are considered as
being private or social and how the levels of costs in each cost category are calculated.
In this discussion paper we adopt the below definitions of costs associated with alcohol
consumption: private costs, social costs, policy-relevant spillover costs, and the direct costs
to Australian governments.
Private costs
The ‘private costs’ of alcohol consumption are defined in this discussion paper to comprise
the costs knowingly and willingly incurred by a person on themselves that arise from their
consumption of alcohol. These are costs that a person took into account when they made
decisions to consume alcohol.
Social costs (or spillover costs)
The ‘social costs’ of alcohol consumption are defined in this discussion paper to comprise
the sum of the following:

all costs imposed on persons external to a drinker arising from their consumption of
alcohol (external costs); and

the costs incurred by a drinker arising from their drinking that they did not take into
account when deciding to consume alcohol.
The ‘social costs’ are also called ‘spillover costs’.
Policy-relevant spillover costs
The ‘policy-relevant spillover costs’ are defined to be the spillover costs the levels of which
can be affected by government policy. An example of this in environmental policy is the cost
of climate change which government might be able to influence through the regulation of
greenhouse gas emissions.
It is important to distinguish policy-relevant spillover costs from other spillover costs as some
spillover costs may not be able to be affected by government policy.
Direct costs to Australian governments
The ‘direct costs to Australian governments’ are defined to be the costs to government
associated with the regulation of the alcohol sector and addressing the harms from the
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consumption of alcohol. Examples of these costs include ambulances, hospitals, police and
the justice system.
Total costs
The total costs of alcohol consumption comprise the private costs and the social (spillover)
costs.
1.3
Summary of policy-relevant spillover costs
There are various sources of policy-relevant spillover costs arising from alcohol misuse.
Across key cost-of-alcohol studies, the:

categorisation of costs differs with costs aspects being grouped in different ways (e.g.
by cause, the party affected, expenditure on resources). There is no single ‘correct’ way
of doing this and data availability and study focus has largely determined this;

specific costs considered also vary within each group – this is largely due to slight
differences in what the cost studies is seeking to precisely measure. This often has
been determined by availability of robust data:
 Marsden Jacob Associates (2012) explicitly note that costs are only included in
relation to short-term episodic drinking where the data is clean, beyond dispute,
directly collected, forward looking, well documented and transparent and
conservative.
 Laslett et al (2010) is a broader study that seeks to estimate ‘how many Australians
are affected by others’ drinking?’, who is affected?, how are Australians affected or
harmed?, what are the costs to others – in trouble, in time, in money?’.

different models of drinker rationality are assumed – this shapes the way in which the
costs are regarded to be private (or internalised) and social (external). While the split
between private and social costs excites a great deal of commentary it is important to
note that if approaches do not result in double counting of costs or impacts, the
community wide costs should add up to the same amount;

the way in which the incidence of harms from alcohol misuse are defined (i.e. inputs
versus output thresholds) differ.
The discussion paper focuses on identifying which spillover costs of alcohol misuse have
policy significance and how they could be measured. While this is important, from a policy
viewpoint the other relevant issue needing to be addressed is determining the degree to
which public policy measures can reduce these costs, whatever they may be at present.
The importance of being able to understand the degree to which different public policy
measures can reduce the costs, to date, however has been lost due to the controversy
surrounding the magnitude of the different costs estimates calculated.
This discussion paper forms a first step or at least an early step towards developing a
workable framework for estimating the policy-relevant spillover costs of alcohol misuse. By
fostering a consensus on the framework to be applied, the magnitude of the costs can be
measured with government and the broader community being able to better identify and
develop policy measures to address and manage the costs.
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1.4
Outline of this discussion paper
In identifying the relevant issues and models for estimating the spillover costs of alcohol
misuse, this discussion paper:


discusses the models for assessing the policy-relevant spillover costs — Chapter 2;

identifies the sources of costs and measurement issues — Chapter 4.
outlines the issues surrounding assessing the burden of alcohol consumption —
Chapter 3;
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Spillover costs of alcohol misuse:
models for assessment
2
A key issue for formulating public policy measures to address alcohol misuse is to identify
those impacts that are most relevant. The model for assessing these costs will affect the
magnitude of the estimated spilllover costs of alcohol misuse. This chapter identifies and
outlines key issues that shape assessment of spillover costs.
2.1
A listing of impacts from alcohol consumption
Like most activities, the consumption of alcohol has an array of impacts. Some apply:






directly to those individuals who consume alcohol;
indirectly to those individuals who interact with drinkers;
directly to those that work in the industry;
indirectly to those that work in other industries;
directly and indirectly to government; and
some broader impacts which operate at the community level.
Where the consumption of alcohol is associated with harmful behaviours, this behaviour can
impact upon others.

The misuse of alcohol consumption can affect not just the drinker but also their families,
friends, work colleagues, and their employers for whom they may be less productive.

The misuse of alcohol consumption can also result in expenditures by governments or
welfare agencies, and sometimes the court or prison system, on measures to deal with
and address the adverse impacts of alcohol-related harms.
Within the alcohol industry itself, resources are used to produce alcohol for consumption.

The alcohol sector is a source of income and employment for employees, rent for
owners of alcohol-related venues and profits (or sometimes losses) for its investors, as
well as taxes for government.

At the same time however, there is an opportunity cost associated with these resources
as their consumption by the alcohol industry means that they are not available to be
consumed for other purposes.
The activity and performance of the alcohol sector also affects the performance of other
industries.

On the one hand, it boosts jobs and profits in related industries that either supply the
industry or complement it. For example, taxis and hotels may gain custom from growth
in the consumption of alcohol.

On the other hand, the alcohol industry competes against other suppliers of
goods/services for consumers’ expenditure so that growth in the alcohol industry can
potentially have a negative impact on jobs and investment in those other industries and
the taxes the government earns from them. Other consumer discretionary expenditure
industries (i.e. retailers) are one group that would be expected to be negatively affected
from growth in alcohol consumption and the alcohol industry.
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As highlighted, government is affected by alcohol consumption in terms of alcohol excise
revenues received and health/welfare expenditures incurred as a result of alcohol-related
harms. More broadly however, the level of alcohol consumption can affect the community,
including:

The feeling of individuals living in a community where alcohol is consumed. For
example, Kings Cross is an example of a community where the residents have recently
formed action groups to address the harms associated with alcohol-fuelled violence.

The norms and social ethics of the community, and through them, the way individuals
act in their interactions with others in all aspects of life.

Alcohol consumption can also have different regional and local impacts, depending on
the incidence and nature of alcohol consumption in different areas.
2.2
No ordinary commodity
As highlighted by section 2.1, unlike many ordinary goods, the consumption of alcohol can
lead to enjoyment by the drinker but harm to themselves and others – and greater levels of
harm might be associated with greater levels of consumption and enjoyment. It is accepted
that the main costs of alcohol stem from the spectrum of drinking behaviour whereby there
is misuse of alcohol consumption with resulting harms.
Figure 1 summarises some of the negative impacts of alcohol consumption.
Figure 1
Negative impacts of alcohol consumption
Source: ACIL Allen Consulting 2013.
As highlighted by Figure 1 many of the identified negative impacts from alcohol consumption
are not only confined to the drinker but involve the imposition of costs on employers, family
members, neighbours and other unrelated individuals. It is because of these type of costs
that the World Health Organization (2004) considers that alcohol is not an ordinary good:
“Alcohol is not an ordinary commodity. While it carries connotations of pleasure and sociability
in the minds of many, harmful consequences of its use are diverse and widespread. As
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documented in this report, globally, alcohol problems exert an enormous toll on the lives and
communities of many nations, especially those in the developing world.”
World Health Organization (2004)
This view has been reiterated by many including Marsden Jacob Associates (2005):
“Alcohol is not just another product. Consumption of alcohol can be harmful to consumers, and
can have significant effects on people other than the consumer, such that regulatory
intervention is necessary.”
Marsden Jacob Associates (2005)
It is because alcohol is not an ordinary commodity that policy-relevant analysis of its
adverse consequences and the cost to the community is needed. Its nature also has
implications for the way in which the spillover costs of alcohol misuse are accounted for (see
sections 2.3 and 2.4 for more discussion).
2.3
Private and external cost classification of costs
The definition of the types of costs (i.e. social costs, private costs, spillover costs) differs
across the studies that have examined the costs of alcohol use. However it is clear from
Figure 1 that alcohol misuse has a number of negative consequences for both the drinker,
to others and to the broader community.
The costs of alcohol misuse can be depicted as being either:


private costs incurred by the drinker; or
external costs (externalities) imposed on others (the non-drinker).
Figure 2 depicts the classification of different types of costs from alcohol misuse.
Figure 2
Costs of alcohol misuse by private and external cost classification
Source: ACIL Allen Consulting 2013.
Upfront it is acknowledged that there are different definitions of what constitutes spillover
(social) costs in the existing economic literature. Often, social costs are defined to include
private costs plus external costs — in other words the total costs. However for the purpose
of this discussion paper, social (spillover) costs include external costs plus those private
costs resulting from an individual’s decision to drink that were not fully taken into account
when the decision to drink was made. This definition is consistent with that adopted by the
Productivity Commission (1999) in relation to problem gambling (based upon those in
Markendya and Pearce (1989).
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Rationale for government intervention
The distinction between private and spillover costs is important. This is because the nature
of private benefits and costs of alcohol consumption alone does not provide the justification
for government to introduce public policies to modify the private decisions of individuals and
businesses that supply and goods and services to them.
Conversely, where spillover costs or benefits exist, government intervention is justified to
improve market outcomes. This is the case where drinkers do not take into account the
costs of their alcohol consumption when making the decision to consume alcohol. In these
cases there are net spillover (social) costs, with too much of the good being consumed from
a community perspective. (See Box 1 for an example in which the benefits of the alcohol
consumed beyond Q0 are less than the costs per unit of consumption, with the net loss in
consumer surplus equal to the area ABC).
The focus on costs needs to take into account those costs that are inadequately priced or
accounted for in market transactions because the existence of such costs means that, for
society as a whole, there would be an excessive level of production and consumption of the
product in question. In turn, this provides a rationale for corrective government action or
policy attention, depending on the costs associated with any such intervention.
Private impacts and public policy
The private impact of an activity/industry is irrelevant when considering government
intervention. This is because individual actions based on informed and rational decisionmaking will generally accord with the best interest of the individual concerned.
If there are no impacts on other people resulting from those actions which are not accounted
for, then the individual’s best interest will also align with society’s best interest. If this is the
case, there is no way that government should intervene in individuals’ decisions that would
lead to an improvement in the welfare of either the individuals concerned or society more
broadly.
Although private impacts alone do not provide a justification for government intervention,
sometimes government does intervene on the basis of equity and fairness. An example of
this is the government providing a social security system in Australia. Moreover, when
considering whether to introduce a particular public policy to address a spillover impact, it is
important for government to ensure that the policy is targeted, effective and proportionate to
the spillover being addressed.
2.4
The rationality of drinkers?
So far the discussion has been predicated on the assumption that individuals are rational
and act in their own best interest. However the variation between alcohol cost studies is also
explained by the level of rationality assumed for the drinker.
A key factor behind the greatly differing estimates of the magnitude of the cost of alcohol in
different studies is the assumption made in each study about the extent to which alcohol
drinkers:


are rational; and
have access to full and complete information about the alcohol they are consuming –
i.e. whether there is information failure.
These are important because the assumed rationality of the individual will affect the
quantum of spillover costs estimated from the misuse of alcohol.
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The economic impacts of rationality
Rationality and access to information are key factors because if alcohol misuse was a truly
rational phenomenon, any problems faced by drinkers would not involve any net costs to
themselves.
A perfectly rational person with full knowledge of all relevant information would be expected
to make a decision to drink or not drink that maximises their utility. Any resulting costs and
benefits they bear – including injury, disease, and death – would be taken to be ‘private’
costs that are not included in the definition of spillover costs.
If, however, a person is not perfectly rational – e.g. if their mental faculties have not fully
developed – the definition of spillover costs will be different and will include a proportion of
those private costs incurred by the drinker which were not taken into account when they
decided to drink.
Conceptually, a perfectly rational individual who considered that alcohol had fewer negative
health impacts than it actually does would – everything else being equal – over-consume
alcohol relative to if they had perfect information. This person would subsequently suffer
greater health harms than they had anticipated, and the costs (and benefits) associated with
those unanticipated greater health harms would be in the form of spillover costs/benefits.
Where the consumer is not rational, the consumer surplus from the decision to drink is not
as large as it would be when consuming an ordinary good without any externalities
associated with the decision — see Box 1 which outlines in more detail the economic
impacts of the assumed rationality of the individual when consuming a good which is not
ordinary.
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Box 1
Demand for alcohol under the assumption of ‘rationality’ and
‘Irrationality’
The assumption of rationality used in the models is important in economic theory as it impacts an
individual’s level of consumption of alcohol.
The figure below provides an idealised view of a rational individual’s consumption of alcohol and the
impacts of irrationality. In this figure, the individual’s demand for alcohol is given by the D-D1 line and
they consume Q0 litres of alcohol per year at a price of $P0 per litre. The consumer surplus (welfare
enjoyed by the drinker) is equivalent to CP0D.
If the assumption of rationality of the drinker is relaxed so that it is assumed that the drinker is not
rational and does not fully take into account the costs of alcohol misuse, the person’s demand curve
will increase. That is, if the consumer is rational, the drinker’s demand for alcohol will increase to the
E-D0 line – under which their alcohol consumption increases to Q1 litres per year. The shift of the
demand curve to reflect irrational demand of the drinker shows that under irrationality, the drinker
would over-consume alcohol to the tune of the difference between Q1 and Q0. This is because the
costs of this additional consumption of alcohol outweigh the benefits in the order of the triangle ABC.
Source: ACIL Allen Consulting 2013.
Models of drinker rationality assumed in the various studies lie on a continuum as indicated
in the figure below. Models closer to the left hand side of the continuum take drinkers as
displaying greater rationality when making decision to consume alcohol. Models closer to
the right assume drinkers’ decisions to consume alcohol as significantly and substantially
deviating from those of the rational consumer.
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Figure 3
Models of drinker rationality
Source: ACIL Allen Consulting 2013
For convenience we have specified three models lying on the continuum to illustrate the
variation in the approaches that can be used to calculate the quantum of spillover costs. We
have labelled these models: “fully rational”, “bounded rationality”, and “limited rationality”.
The importance of the models is that they are conceptual frameworks for deciding which
costs can be categorised as being spillovers and which costs can be categorised as truly
private. The key underpinning assumptions of each model and the types of costs taken to
be spillovers are given in the table below.
Table 1
Models of drinker rationality
Model name
Assumptions
Costs classified as spillover costs
Fully rational
Drinker takes all known information into
account when making decisions to
consume or not consume alcohol.
Decisions to consume or not consume
alcohol are taken on average to
maximise individual utility.
All costs borne by third parties except family members or persons with
whom the individual has an implied or explicit contractual relationship
relating to their consumption of alcohol.
The allocation of costs as private is greatest in this model relative to
other models.
The allocation of costs as spillover costs is least in this model relative
to other models.
Bounded
rationality
Drinkers have misperceptions and their
decisions to consume or not consume
alcohol are unlikely, on average, to
maximise their utility.
However, individuals can still limit their
drinking to reduce harms to themselves
and others.
All costs unknowingly and unintentionally borne by the drinker, in
addition to all costs borne by other parties that are not internalised via
agreements between those parties and the drinker.
The allocation of costs as being private is lower than that in the Fully
Rational model and greater than that in the Limited Rationality model.
The allocation of costs as spillover costs is greater than in the Fully
Rational model and lower than that in the Limited Rationality model.
Limited rationality
Decisions to drink or not drink deviate
substantially and materially from
decisions of a fully rational person.
A person’s decision to drink or not drink
is unlikely, on average, to maximise
their utility.
All costs borne by parties external to the drinker in addition to those
costs borne by the drinker that they did not knowingly and willingly
seek to bear.
The allocation of costs as being private is least in this model relative to
other models.
The allocation of costs as spillover costs is greatest in this model
relative to other models.
Source: ACIL Allen Consulting 2013.
These models are described in more detail in the following sections together with the
context in which they have been adopted by various cost studies.
Fully rational model
The fully rational model is at one end of the drinker rationality continuum. It is based on the
theory of rational addiction developed by Becker and Murphy (1988) in order to explain
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addictions. They claimed that, ‘addictions, even strong ones, are usually rational in the
sense of involving forward-looking maximization with stable preferences.’
In Becker and Murphy’s model, addiction results from rational decisions to consume or not
consume drugs made with a view to maximise an individual’s utility over time. The
Productivity Commission gave an overview of rational addiction theory in its 1999 Inquiry
into Australia’s Gambling Industries:
“The rational addiction model is an economic theory, based on the idea that ‘forward looking’
compulsive gamblers (or indeed ‘addicts’ of heroin or alcohol) weigh up the pleasure of their
consumption of gambling (now and in the future) against its costs. In this model, they are
habituated to gambling, not because of irrationality, but because what they have consumed in
the past increases the pleasure of current consumption. The model does not ignore the harms
that are posed by the addiction. It posits that rational addicts weigh these harms against both
the forgone pleasure of current and future consumption, and the trauma of cutting down or
ceasing consumption.”
Productivity Commission (1999)
In this model a drinker takes all known information into account in deciding whether to
consume alcohol and makes a consumption decision with a view, on average, to maximise
their utility.
The importance of this model for this discussion paper is that, if rational addiction theory is
taken as a correct explanation or description of addiction, all the costs falling on to an
individual consuming alcohol that arise from that consumption must be categorised as
private costs.
Empirically, the evidence supporting the rational addiction theory for alcohol is mixed.
Baltagi and Griffin (2002) found empirical evidence from 42 states in the United States over
the period 1959-1994 consistent with the rational addiction hypothesis, while Baltagi and
Geishecker (2006), examining a Russian longitudinal monitoring survey for 1994-2003, did
not find support for the rational addiction model for Russian women nor did they endorse it
for Russian men.
Crampton and Burgess (2009), in their critiques of a 2009 report by the New Zealand
Business and Economic Research Limited (BERL), adopted a model of greater rationality
than others in which many costs of alcohol misuse to the drinker’s family and employer are
assumed to be internalised and not categorised as spillover costs. Their reasoning was that
the agents (family members and employers) are rational agents linked through a contractual
nexus.
“…Externalities can be imposed on private citizens and, conversely, costs to a business of
employing an unproductive worker are not externalities…. …A basic staple of principles-level
economics is that costs or benefits are not external if the agents are linked through a
contractual nexus: the baby crying next to me on the long-haul flight does not impose an
externality on me because I have chosen to buy a ticket that includes the risk of such
unpleasantness and was accordingly charged less for that ticket. Similarly, a worker who slacks
off on the job or takes inordinate numbers of sick days does not impose externalities on his
employer…”
Crampton and Burgess (2009)
Under the fully rational model, the magnitude of private costs in the fully rational model is
greater than in the bounded rationality or limited rationality models because none of the
private costs incurred are categorised as a spillover cost of alcohol misuse.
Bounded rationality model
In the bounded rationality model a person is taken to suffer from misperceptions and may
make ‘non-optimal’ decisions about alcohol consumption while still limiting their drinking to
reduce harms to themselves and others. In this model, the unintended costs falling onto a
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drinker from their alcohol consumption and all costs falling onto their family and others
(except those costs that are clearly intended to be internalised) are taken to be spillover
costs.
In its inquiry into problem gambling, the Productivity Commission (1999) stated that there is
no such thing as a perfectly informed and fully rational person. It also considered that
gamblers could be boundedly rational even if they were not fully rational.
“There is no such thing as a perfectly informed and fully rational person. All human beings may
suffer from ‘bounded rationality’ or ‘cognitive limitations’ to some degree and rarely have
‘perfect information’ about the matter they are considering. However, as government decisionmakers are also hampered by these same problems and have highly imperfect knowledge of
the preferences of different individuals, economists classify costs as private costs unless there
is a significant divergence from the criteria of rationality and full information (and no
externalities…)”
Productivity Commission (1999)
The PC considered that at least some of the costs of problem gambling faced by family
members should be considered as spillover costs. While the PC agreed that family
relationships involved ‘social norms and implicit rules or agreements governing the
behaviour of family members’, the costs imposed on family members from problem
gambling were genuinely social costs.
“…relationships governed by informal arrangements only work well if those involved abide by
the informal agreements, by their very nature, informal agreements are difficult to enforce in
extreme situations.
Problem gambling is a clear case of where such behavioural norms and informal agreements
break down. It is difficult to see how informal family ‘contracts’ can be enforced in the face of
persistent deception, the disproportionate use of the family’s resources and often theft, among
other things, that characterise the behaviour of a problem gambler.”
Productivity Commission (1999)
The PC also considered that the costs to government of providing welfare and counselling
services were spillover costs and that the costs of poor productivity in the workplace were
internalised to some extent.
Limited rationality model
In the limited rationality model a person’s decision to consume or not consume alcohol
deviates substantially and materially from the decision they would make if they were fully
rational. On average, their decisions are expected to not maximise their utility. As a result,
all costs falling onto a drinker’s family members or third parties are categorised as spillover
costs, as are all costs incurred by the drinker.
This type of model was used in a number of studies (such as BERL NZ 2009) which follow
the approach of Collins and Lapsley (2008). Collins and Lapsley drew on Markandya and
Pearce (1989) to define spillover costs (which they label as ‘social’ costs) in a way that at
first glance appears similar to the definition in the bounded rationality model:
“To the extent that the costs are knowingly and freely borne by the consumer or producer
himself, they are referred to as private costs but to the extent that they are not so borne but fall
on the rest of society they are referred to as social costs…
An important issue, as the two authors [Markandya and Pearce] point out, is “the extent to
which the consumer is aware of the costs that he bears. If his actions are determined by a
perceived cost that is in fact less than his actual cost, the difference between the two can be
viewed as a social cost”. This is because “the individual himself has not adjusted his behaviour
to reflect these higher costs and they are, therefore, unaccounted for.”
Collins and Lapsley (2008)
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However, Collins and Lapsley operationalised spillover and private costs differently to that in
the bounded rationality model – they defined the spillover costs of alcohol ‘abuse’ more
broadly:
“Thus, the crucial issues in relation to the estimation of the social (external) costs of abuse are:

Are consumers fully informed?

Are consumers consistently rational?

Are consumers required to bear the total costs of their consumption?
If any one of these conditions is not satisfied the resultant costs are social costs. Only if all
three conditions are simultaneously satisfied will the resultant costs be private costs.”
Collins and Lapsley (2009)
Furthermore, the authors considered that a high proportion of addictions would be acquired
at times when the addict is unlikely to be rational and in possession of full information.
“The question of rationality also raises interesting issues. Rationality, as defined in the paper
by Becker and Murphy (1988) on the theory of rational addiction, implies utility maximisation
over time. Stevenson (1994) also says that the theory of rational addiction “assumes that drug
users are rational, forward looking utility maximisers who base consumption decisions on full
knowledge of the consequences of addiction…
A high proportion of addictions are acquired in the early- or mid-teens when it would seem that
the presence of both rationality and full information is unlikely.
…Short-run utility maximisation need not necessarily imply long-term positive overall benefits
from drug use. Rational behaviour of an addict is not the same as rational behaviour of a
person contemplating acquiring an addiction, and the two cannot be equated.”
Collins and Lapsley (2009)
They also assume that drug users and abusers would be unlikely to be well-informed.
Adopting the limited rationality model results in estimates of spillover costs at the higher end
of the scale.
2.5
Summary of private and spillover cost
categorisation
The total costs of alcohol misuse to society comprise both private costs and spillover costs.
Private costs are those ‘internal’ costs borne by the drinker which were rationally considered
when they decided to undertake the activity.
In contrast, spillover costs are ‘external’ costs comprising:

non-internalised private costs — the proportion of internal costs which an individual did
not rationally take into account when deciding to undertake the activity; and

externalities — those effects of an activity that are imposed involuntarily on others in
society.
The ‘policy-relevant spillover costs’ are defined to be the spillover costs which can be
affected by government policy.
The magnitude of the non-internalised spillover costs will depend upon the model of drinker
rationality adopted.
2.6
Tangible and intangible costs
Putting aside the debate about the distinction between private and policy-relevant spillover
costs, there are both tangible and intangible costs of alcohol misuse. The discrepancy in
costs estimates between studies is largely a result of whether intangible costs are included.
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Tangible costs from alcohol misuse and its consequences include medical services and
hospital-related costs.
Intangible costs from alcohol misuse include impacts on the health and quality of life of the
drinker and family members of the drinker.
In its inquiry into problem gambling, the PC used the following framework to consider the
tangible and intangible costs:
“A broad framework that allows the analysis and comparison of tangible and intangible impacts
and provides scope to incorporate the insights and findings of other academic disciplines, such
as psychology, psychiatry and sociology. In other words, contrary to many popular conceptions,
this broad economic approach is not simply about ‘money, markets and materialism’.”
Productivity Commission (1999)
Despite the difficulty in quantifying the costs, the PC’s rationale for including intangible costs
was:
“…as these intangible costs are a major element of the adverse consequences of gambling for
some people, it is essential to gain some idea of their possible size…”
Productivity Commission (1999)
Collins and Lapsley (2008) and Laslett et al (2010) also included the intangible costs
associated with the loss of life (using a value of a statistical life year) when estimating the
costs of alcohol-related harms. The respective cost estimates highlight that the intangible
costs of alcohol-related harms are not insignificant.
Table 2 provides a summary of examples of the tangible and intangible cost estimates of
Collins and Lapsley (2008) and Laslett et al (2009) by types of social cost. They highlight the
magnitude of the respective estimates of the intangible costs of alcohol misuse in Australia.
Table 2
Estimated total social costs of alcohol in Australia (2008)
Social cost item
Tangible
Intangible
Total
$ million
$ million
$ million
Labour (lost productivity) costs
3,975
-
3,975
Healthcare costs
2,221
-
2,221
Road accident costs
2,474
397
2,871
Crime not elsewhere included
1,600
-
1,600
Resources used in abusive consumption
1,897
-
1,897
-
4,646
4,646
12,167
5,043
17,210
Collins and Lapsley 2008
Loss of life
Collins and Lapsley sub-total
Laslett et al 2010
Child protection system
672
-
-
Effects on household/family member or friend with most effect
9,424
7,364
16,788
Property damage by stranger’s drinking
1,133
-
1,133
Counselling, advice, treatment expenses
Laslett sub-total
110
-
110
11,339
7,364
18,703
Source: Marsden Jacob Associates (2012)
Crampton et al (2011) likewise does not argue explicitly that intangible costs should be
omitted from cost estimates. Rather, they question the methodologies used by other studies
to estimate the level of these costs – e.g. they consider that intangible costs affecting the
family members of drinkers should be excluded on the basis that all costs to family members
are internalised costs.
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In other cases, however, intangible costs have been explicitly excluded from cost of alcohol
misuse studies due to the uncertainty of the cost estimates (Marsden Jacob Associates
2012). Where this is the case, the subsequent cost estimate has been qualified as being a
minimal cost to society as a result of alcohol misuse.
2.7
Time dimension to measuring the costs of
alcohol
The time dimension needs to be considered when measuring the costs of alcohol to the
Australian community. The level of costs can vary due to the time dimension of the cost
aspects adopted even where one single method of assessment is selected. For example,
cost of illness (COI) studies estimating the cost of alcohol to the community can be derived
using either prevalence or incidence methods. The distinction between these methods is
that:

the prevalence method considers the costs associated with all of the affected patients in
relation to a specific period; whereas

the incidence method only takes account of patients who have fallen ill during the
period.
Selection of either of these methods will obviously have an impact on the magnitude of the
estimated cost.
The distinction between the different timing aspects from alcohol misuse is also reflected in
the World Health Organisation’s (WHO 2004) guidelines:
"Estimates of the total costs of drug abuse comprise both avoidable and unavoidable costs.
Unavoidable costs comprise the costs which are currently borne relating to drug abuse in the
past, together with the costs incurred by the proportion of the population whose level of drug
consumption will continue to involve costs. Avoidable costs are those costs which are
amenable to public policy initiatives and behaviour change."
To determine the appropriate time dimension to measuring the costs of alcohol misuse, we
need to understand the policy question we are addressing when estimating the costs of
alcohol.
This discussion paper has been produced, in part, in response to the Henry Review (2009)
in which it was flagged that it was time to shift the taxation of alcohol towards combating the
social harms associated with alcohol consumption, based on the evidence of those harms.
This paper is a first step in doing this by outlining a possible framework for estimating the
level of social harms from alcohol consumption. This policy question suggests that we are
seeking to estimate the costs of alcohol misuse to the Australian community at a point in
time which can be addressed by appropriate policy measures and interventions – consistent
with the WHO’s (2004) definition.
Another aspect to the time dimension of measuring costs involves ensuring that where the
costs to be included occur outside the period of time under consideration (e.g. a specific
financial year), they need to be discounted to reflect their present value. Where necessary,
an appropriate discount rate needs to be considered and determined.
A final aspect to the time dimension of measuring costs relates to the robustness and
acceptance of the relationship between the misuse of alcohol and specific costs. Marsden
Jacob Associates (2012) explicitly acknowledged in their benefit cost analysis (BCA) of
alcohol taxation reform that certain costs had been excluded where the methodologies for
estimating the level of costs were controversial and/or where the costs were incurred in the
future and associated with a high level of uncertainty. An example of the criteria adopted by
Marsden Jacob Associates (2012) included that:
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•
data are clean, beyond dispute, and preferably directly collected;
•
no double counting/well documented and transparent;
•
forward-looking and changeable; and
•
estimates are conservative with any bias meaning under-estimation of costs.
Marsden Jacob Associates (2012)
The study explicitly excluded the more long-run costs due to the uncertainty associated with
the methodology and estimates. Criteria for determining the inclusion of available estimates
should set a standard so that the costs estimated are not associated with controversy and
debate.
QUESTIONS FOR
CONSULTATION
1. Which one of the three models of drinker rationality do you support: full rationality,
bounded rationality, or limited rationality?
2. If you do not support any one model of drinker rationality, to what extent do you think
drinkers are rational for the purposes of identifying the spillover costs of alcohol misuse?
3. Do you support including both the tangible and intangible costs of alcohol misuse when
estimating the policy-relevant spillover costs of alcohol misuse? If not, which should be
included and why?
4. Should some categories of costs from alcohol misuse be excluded where there is a
degree of uncertainty in estimating their levels? If so, which categories of costs should
be included and which should be excluded?
5. Should the prevalence method or incidence method be used in assessing the policyrelevant costs of alcohol? Why?
6. What discount rate should be applied to those costs identified as being relevant which
are incurred in the future so that they reflect the appropriate net present value?
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Defining harmful alcohol
consumption
3
This chapter reviews a narrative about the measurement of social costs that emerge when
starting from the identification of harmful levels of alcohol consumption. The chapter is
divided into two broad sections. The first part of the chapter examines definitions of the
harms arising from alcohol use including:



the impact of alcohol misuse;
the point at which alcohol consumption begins to incur a social cost; and
the use of defined harms to determine alcohol-related harm.
The second part of the chapter looks at the use of thresholds to determine harms,
specifically:


the use of alcohol consumption levels to determine alcohol-related harm; and
methods employed in the literature to assess the impact of alcohol-related harm.
3.1
Determining the harms arising from alcohol
misuse
3.1.1
What is the impact of alcohol misuse?
There is no single or universal definition of what constitutes harmful alcohol consumption
and misuse. The misuse of alcohol occurs in both acute and chronic forms and has varying
impacts over time. It is generally associated with:




adverse impacts on a drinker’s health;
additional adverse impacts on a drinker’s life;
adverse social impacts on the drinker and those around them; and
adverse economic impacts on both the drinker and society.
Some of the identified health and social consequences are detailed in Box 2. As highlighted
in that box, alcohol misuse can have a wide range of impacts on an individual in both the
short and long run. Accordingly, it is not easy to clearly separate and identify all of its social
and economic dimensions. In addition, it can be difficult to individually measure and quantify
associated social harms.
3.1.2
When does alcohol consumption begin to incur a social
cost?
Determining the cost of alcohol misuse is important because it:



highlights the importance of developing public policies to address such misuse;
forms a basis for appropriately targeting specific problems and policies; and
provides a baseline measure for assessing the effectiveness of public policies.
However, before attempting to define the broader costs that arise from alcohol misuse, it is
important to determine what level of consumption constitutes a risk of harm so that, for
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certain types of costs, they can be identified and measured. It is acknowledged however
that it is not necessary to determine a threshold to identify and measure all costs of alcohol
misuse.
There is significant contention surrounding at what point alcohol consumption transitions
from being a ‘low’ risk activity to a ‘high’ risk activity. Determining the threshold is necessary
to identify the point at which alcohol-related harms are expected to occur.
Box 2
Health and social harms causally linked to alcohol misuse
The World Health Organisation (2011) identified a range of disease and injury categories causally
linked to alcohol, including:
 Neuropsychiatric disorders — alcohol use disorders are the most common disorders in this
category. Epilepsy is also impacted by alcohol consumption. Other neuropsychiatric disorders are
associated with alcohol consumption but the extent to which they are caused by it is not clear.
 Gastrointestinal diseases — acute and chronic pancreatitis and liver cirrhosis is related to
alcohol consumption, with the risk of contracting either increasing with greater doses.
 Cancer — alcohol consumption is a recognised risk factor for cancers of the: colon; breast;
larynx, liver, oesophagus, oral cavity and pharynx, the risk of developing cancer increases with
the amount of alcohol consumed.
 Intentional injuries — alcohol consumption, especially at acute levels, has been linked to an
increased risk of intentional injuries, including violence and self-inflicted injuries.
 Unintentional injuries — the risk of unintentional injury – including falls, road traffic accidents,
drowning, poisoning etc – increases with alcohol consumption, these risks increase exponentially
with high levels of consumption.
 Cardiovascular diseases — the relationship between cardiovascular disease (CVD) and alcohol
is complex. Light to moderate drinking can have a protective effect on the risk of morbidity and
mortality from ischaemic heart disease and stroke. However this beneficial effect is negated by
heavy drinking episodes. The risk of developing other forms of CVD including hypertension,
cardiac dysrhythmias, haemorrhagic stroke increases with alcohol consumption, regardless of an
individual’s drinking pattern.
 Fetal alcohol syndrome and pre-term birth complications — alcohol consumption during
pregnancy can lead to these complications, which can have cause permanent disability for the
child.
 Diabetes mellitus — in a similar fashion to CVD, light to moderate drinking can be beneficial for
reducing the risk of developing diabetes mellitus, however heavy drinking increases the risk.
Beyond the acute and chronic health impacts listed above, social harms linked to alcohol
consumption include:
 Crime — it is recognised that alcohol is a risk factor for violence and antisocial behaviour – an
increased risk of a range of criminal offences comes with heavy alcohol consumption. These
offences in turn incur costs in the form of interactions with the criminal justice system,
incarceration and impacts on victims of alcohol-related crime (Harwood et al 1998).
 Relationship breakdowns — alcohol misuse can have an adverse impact on families and
relationships. An Australian study of 165 indigenous adults showed that there were 29 alcoholrelated deaths in a 10 year period and 111 alcohol-related injuries and illnesses requiring
hospitalisation in a 7 year period (Room et al 2002);
 Lowered work productivity and job loss — individuals that consume a ‘harmful’ level of alcohol
are about 1.2 times more likely to be absent from work compared to those who do not drink (Pidd
et al 2006). This estimate does not take into account alcohol-attributable on-the-job productivity
losses.
There are a number of different scales and thresholds that have been applied in the
assessment of alcohol-related harm in Australia and internationally — see Table 5 and
Table 6 for a summary of these studies and the thresholds applied. The studies varied
based on whether harms were assessed as functions of alcohol-inputs or alcohol-related
outcomes defined as follows:
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

Inputs — the consumption of a certain number of standard drinks in a set period of time;
Outcomes — the presentation of defined set of symptoms or Alcohol Use Disorders
(AUDs).
Determining a threshold is further complicated because there will be variations within
categories however they are defined — individuals may behave similarly but experience (or
cause) differing levels of harm.
Determining a threshold is an arbitrary but useful tool. This is because the use and abuse of
alcohol occurs on a continuum. This continuum ranges from those who experience a low or
limited risk of harm from their consumption of alcohol, at a certain point, through to those
who experience a moderate or high level of risk.
The concept of a continuum of harm is helpful when considering the establishment of a
threshold limit for acceptable risk. This is particularly important in relation to the question of
what level of harm and what risk of that harm occurring is the community willing to accept.
The theoretical underpinnings of this continuum are elaborated further in the following box.
Box 3
The burden of alcohol-related harm occurs on a continuum
The threshold question of what constitutes harmful alcohol consumption is necessary for defining the
magnitude of the problem. In their assessment of the costs arising from problem gambling, the
Productivity Commission (PC) examined problem gambling from the perspective of a continuum.
In their assessment of the costs of problem gambling, the PC noted that some gamblers have been
observed ‘chasing their losses’ in order to make up for previous losses. They make the argument that
considering that ‘this is a self-defeating strategy’, it suggests an individuals’ self-awareness of a
gambling problem. As a result an argument could be made that ‘chasing losses’ could be counted as
part of a cost of gambling – where private costs become public.
The PC noted that the difficulty of determining the right threshold for problem gambling arises from
the fact that cases of harm vary by their location on a continuum. In other areas of public health, a
test may confirm the presence of a particular ailment e.g. lung cancer. In this instance an individual
either has a clinical ailment or they do not. The issue with alcohol, problem gambling and obesity etc
is that it is not clear at what point on the continuum an individual is judged to have a problem.
Applying this continuum framework to alcohol-related harm would reveal that there are a range of
impacts with a continuum of drinking behaviour and impacts of increasing severity. The figure below
depicts the continuum of drinking behaviour and impacts and shows how difficult it is to clearly define
when ‘low risk’ alcohol consumption becomes ‘risky’ alcohol consumption (misuse of alcohol
consumption).
Source: ACIL Allen Consulting and Productivity Commission (1999)
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3.1.3
Determining alcohol-related harm by defined harms
An alternative method of determining alcohol-related risk is to examine the impact of alcohol
misuse in terms of the direct harms that arise from alcohol consumption.
For some adverse harms this is relatively straightforward – for example, Alcohol Use
Disorders (AUDs) arise as a direct result of the consumption of alcohol by an individual.
Under the World Health Organization’s (WHO) international classification, AUDs are
classified according to three categories reflecting increasing levels of risk and harm
associated with alcohol consumption (WHO 2011):

harmful alcohol use — defined as a ‘pattern of alcohol use that is causing damage to
health’;

alcohol dependence — defined as ‘a cluster of behavioural, cognitive and physiological
phenomena that develop after repeated alcohol use and that typically include a strong
desire to consume, difficulties in controlling its use, persisting in its use despite harmful
consequences, a higher priority given to alcohol use than to other activities and
obligations, increased tolerance, and sometimes a physical withdrawal state’; and

alcohol psychosis — defined as ‘a cluster of psychotic phenomena that occur during or
following alcohol use but that are not explained on the basis of acute intoxication alone
and do not form part of a withdrawal state’.
However, alcohol has impacts that range beyond an individual’s health, for example it
increases the risk of a traffic accident when a driver has a high blood alcohol concentration.
It also contributes to an increased risk of some forms of crime and anti-social behaviour.
The role of alcohol as a causative factor in longer-term health issues is even more complex.
3.2
Using thresholds to determine alcohol-related
harms
3.2.1
Determining alcohol misuse by consumption levels
Alcohol-related harm is often measured by the amount consumed by an individual. The logic
follows that as an individual consumes an additional unit of alcohol their risk of harm, either
in the short or long term, increases.
The use of consumption as an arbiter of risk in this fashion is controversial. This is because
alcohol consumption has varying impacts on an individual depending on a range of
physiological factors independent of the amount of alcohol they have consumed, for
example, weight, sex or age. For this reason, consumption-based risk often makes a
distinction between males and females. Additionally, to account for the risk of fetal
alcohol-syndrome, separate rates are often provided for pregnant females.
Consumption-based risk assumes that the risks associated with alcohol consumption are
spread in a linear fashion across the entire population, i.e. a 20 year old male has the same
risk profile as a 45 year old female.
The issue that stands out the most relates to the question of what constitutes an acceptable
level of risk. Collins and Lapsley (2008) considered alcohol misuse to include alcohol
consumption where the likelihood of harm is greater than zero. This is essentially arguing
that if an individual’s consumption of alcohol is increasing their risk of harm by any
measurable amount, this constitutes misuse. This argument has been criticised by
Crampton et al (2011) on the grounds that an individual would be factoring in this increased
risk when making a decision to drink in the first place. The issues that remain outstanding
include:
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

What is an acceptable level of risk a drinker is willing to maintain?
Do these risks vary for short and long-term consumption?
A wide range of definitions and thresholds are used in the literature to define alcohol misuse
in both the short and long-run. For example, guidelines issued by national health agencies
for the recommended maximum daily or weekly consumption of alcohol vary significantly, as
does what constitutes a ‘standard drink’ – see Appendix A for an overview of guidelines in a
range of countries.
In Australia, the National Health and Medical Research Council (NHMRC) sets guidelines on
alcohol consumption and the levels at which consumption is considered ‘risky’. The current
NHMRC guidelines were released in 2009, updating the 2001 guidelines. The NHMRC
guidelines were developed by teams of specialists who followed a rigorous evidence-based
approach. The current guidelines allows for a significantly lower threshold of harm than the
previous guidelines and are summarised in Table 3.
Table 3
NHMRC guidelines to reduce the risk from drinking alcohol
Guideline
Rationale
Recommendation
1.
Reducing the risk of
alcohol-related harm over
a lifetime
The lifetime risk of harm from
drinking alcohol increases with
the amount consumed
For healthy men and women, drinking no more than two standard
drinks on any day reduces the lifetime risk of harm from alcoholrelated disease or injury
2.
Reducing the risk of injury
on a single occasion of
drinking
On a single occasion of drinking,
the risk of alcohol-related injury
increases with the amount
consumed
For healthy men and women, drinking no more than four standard
drinks on a single occasion reduces the risk of alcohol-related
injury arising from that occasion
3.
Children and young people
under 18 years of age
For children and young people
under 18 years of age, not
drinking alcohol is the safest
option.
 Parents and carers should be advised that children under 15
years of age are at the greatest risk of harm from drinking and
that not drinking alcohol is especially important for this age
group.
 For young people aged 15−17 years, the safest option is to
delay the initiation of drinking for as long as possible.
4.
Pregnancy and
breastfeeding
Maternal alcohol consumption
can harm the developing fetus or
breastfeeding baby.
 For women who are pregnant or planning a pregnancy, not
drinking is the safest option.
 For women who are breastfeeding, not drinking is the safest
option.
Source: NHMRC 2009
3.2.2
How has alcohol misuse been determined?
A range of different approaches have been applied to determine what constitutes alcohol
misuse in the literature. As noted previously, the literature has assessed alcohol misuse on
either an input-based assessment of risk or an output-based assessment – see Table 4
below.
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Table 4
Methodologies used to determine the cost of alcohol
Input-based
assessment
Author
Marsden Jacob Associates (2012)
Output-based
assessment

Crampton et al (2011)

World Health Organisation (2011)
*
National Institute for Health and Clinical
Excellence (2010)


Laslett et al (2010)
York Health Economics Consortium (2010)

BERL (2009)

Collins and Lapsley (2008)

*
Begg et al (2007)
Note: * - burden of disease assessment was used.
Source: Marsden Jacob Associates 2012; Crampton et al 2011; World Health Organization 2011; National Institute for Health
and Clinical Excellence 2010; Laslett et al 2010; York Health Economics Consortium 2010; BERL 2009; Collins and Lapsley
2008 and Begg et al 2007.
Input-based studies
Input-based studies use an individual’s level of alcohol consumption as a measure of harm.
In doing so, these studies tend to focus on the measurement of alcohol consumption and its
relationship with associated harms. Examples of studies that have used this approach and a
description the methodologies they have employed are detailed in Table 5 below.
Output-based studies
Output-based studies measure alcohol-related harm using the presentation of alcoholrelated harms. These studies assess the number and costs associated with alcohol-related
incidents, for example vehicle accidents where alcohol was a factor. Examples of studies
that have used this approach and a description the methodologies they have employed are
detailed in Table 6 below.
Discussion
Within each category of risk assessment — input versus output — significant variations exist
between the measurement of inputs and outputs. Each study tends to utilise the alcohol
consumption guidelines from their jurisdiction. The use of different risk thresholds by
different studies is one of the reasons that estimates of harm and their costs vary
significantly. For example, the daily alcohol consumption guidelines for Australia issued by
the NHMRC recommend a lower level of consumption than their United Kingdom
counterparts — see Appendix A. The use of a lower threshold of harm or different guidelines
for what constitutes a ‘binge’ or ‘alcohol misuse’ is one of the reasons that the magnitude of
harm varies significantly between different studies.
The studies included in Table 5 below reflect a range of methodologies from the cost of
illness approaches undertaken by Collins and Lapsley (2008), BERL (2009) and others
through to benefit-cost analysis by Marsden Jacob Associates (2012) and burden of disease
assessment used by Begg et al (2007) and World Health Organization (2011).
The definition of alcohol misuse and the associated threshold for measurement varied
across the surveyed studies. The analysis by Begg et al (2007) and World Health
Organization (2011) relied on the measurement of observed harms in the form of healthrelated complications. This methodology didn’t explicitly rely on the use of a threshold of
COUNTING THE COSTS OF ALCOHOL POLICY-RELEVANT COSTS TO AUSTRALIA
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ACIL ALLEN CONSULTING
harm. Other studies with similar methodologies employed different harm thresholds —
Collins and Lapsley (2008), Laslett et al (2010), BERL (2009) and the York Health
Economics Consortium (2010) applied different harm thresholds, reflecting their varying
countries of origin.
This variation in approaches has been captured in Table 5 and Table 6 below. These tables
provides an overview of a series of recent studies examining the cost of alcohol misuse, an
overview of study methodologies, and definitions of alcohol misuse.
Table 5
Input-based methodologies used to determine the cost of alcohol misuse
Author
Methodology
Definition of alcohol misuse
Marsden Jacob
Associates (2012)
Benefit-cost analysis of the cost of
misuse of alcohol in Australia
Alcohol misuse is defined using a combination of the NHMRC (2011)
guidelines as per Table 3 and the thresholds used for England and
Wales by the Sheffield team (Sheffield 2008a, Sheffield 2008b):
 moderate drinkers — those who consume an average of two standard
drinks or fewer per day. This is the NHMRC Guideline for alcohol
consumption to reduce the risk of alcohol-related death over a lifetime
to no more than 1 in 100;
 hazardous drinkers — those whose average consumption exceeds
those of Moderates but is less than 40 standard drinks per week for
males and 28 standard drinks per week for females; and
 harmful drinkers — those drinking more than Hazardous drinkers.
National Institute
of Health and
Clinical
Excellence (2010)
A cost-of-illness methodology was
applied to estimate the costs associated
with alcohol-use disorders for England
NICE drew on a number of sources including the Cabinet Office (2003)
and the Prime Minister’s Strategy Unit (2004). These sources used a
variety of definitions of alcohol misuse and techniques for calculating
costs.
York Health
Economics
Consortium
(2010)
A cost-of-illness methodology was
applied to estimate the cost of alcohol
misuse to the Scotland
The study uses guidelines based upon those defined in Drummond et al
(2009), which in turn were based upon the WHO’s ICD-10 (1992)
Guidelines. They define:
 hazardous drinking — consumption above a level that may cause
harm in the future, but is not currently causing clear evidence of harm;
 harmful drinking — consumption at a level that is leading the current
evidence or physical, social or psychosocial harm; and
 dependent — having three or more of a range of symptoms of alcohol
dependence.
BERL (2009)
A cost-of-illness methodology was
applied to estimate the cost of alcohol
misuse to New Zealand
The BERL study replicates the methodology used by Collins and Lapsley
(2009). It assumes that alcohol misuse occurs when the attributable
fraction is greater than zero.
In addition to this, in the estimation of the social costs of alcohol the
model assumes that 30 per cent of alcohol was consumed by addicted
drinkers.
Collins and
Lapsley (2008)
A cost-of-illness methodology was
applied to estimate the cost of alcohol
misuse to Australia
Collins and Lapsley’s model assumes that alcohol misuse is occurring
when the attributable fraction is greater than zero. In other words, when
the consumption of alcohol is adversely affecting an individual’s health.
In addition to this, in the estimation of the social costs of alcohol the
model assumes that 30 per cent of alcohol was consumed by addicted
drinkers.
Source: Marsden Jacob Associates 2012; National Institute of Health and Clinical Excellence 2010; York Health Economics Consortium 2010; BERL 2009 and Collins
and Lapsley 2008.
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Table 6
Output-based methodologies used to determine the cost of alcohol misuse
Author
Methodology
Definition of alcohol misuse
Crampton et al
(2011)
A cost-of-illness methodology was
applied to estimate the costs associated
with alcohol-use disorders in Australia
and New Zealand
This study does not explicitly define alcohol misuse based on an arbitrary
threshold. Rather, it seeks to determine the cost of misuse by calculating
the externalities that arise from alcohol consumption. Thus, relevant
costs in this case are not those incurred to the individual drinker, but only
those that affect others. The authors focus on those costs related to
crime, ill-health and road traffic accidents.
World Health
Organisation
(2011)*
Burden of disease attributed to alcohol
exposure measured in disability
adjusted life years (DALYs) for WHO
regions
Alcohol misuse is defined as a pattern of alcohol use that is causing
damage to health. Both the intake of alcohol and the alcohol-attributable
mortality and morbidity is measured. However, mortality and morbidity
data informed the burden of disease calculations.
Laslett et al
(2010)
A cost-of-illness methodology was
applied to estimate the range and
magnitude of the alcohol’s ‘harm to
others’ in Australia
This study examines the extent to which alcohol harms those individuals
surrounding the drinker. As such, it adopts a similar methodological
position to Collins and Lapsley (2008) in that alcohol is considered to
cause ‘harm’ in an instance when the attributable fraction is greater than
zero. In other words, when the consumption of alcohol has been
adjudged to adversely affect an individual at any time.
Begg et al (2007)*
Burden of disease attributed to alcohol
exposure measured in disability
adjusted life years (DALYs) for Australia
Alcohol misuse is defined as a pattern of alcohol use that is causing
damage to health.
Alcohol misuse guidelines are based upon those developed by the
NHMRC (1992).
Risk categories are based upon those developed by English et al (1995).
Note: * - burden of disease assessment study
Source: Crampton et al 2011; World Health Organization 2011; Laslett et al 2010 and Begg et al 2007
QUESTIONS FOR
CONSULTATION
7. Should a harmful level of alcohol consumption be identified for the purpose of developing
a policy-relevant cost of alcohol study?
8. Should an input or output-based approach to assessing the harms from alcohol be used
in determining the policy-relevant costs of alcohol?
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ACIL ALLEN CONSULTING
Measuring policy-relevant spillover
costs
4
It is clear that several sources of possible policy-relevant spillover costs arise in the context
of alcohol misuse. This chapter identifies possible sources of policy-relevant spillover costs
and different ways of measuring them. Where possible, the discussion paper outlines the
varied approaches adopted by recent studies in order to highlight the consequences of
different models and methodologies.
4.1
Considerations when defining policy-relevant
spillover costs
It is clear that the policy question we are seeking to address is important in defining policyrelevant spillover costs. Previous chapters have touched on a possible definition of what
constitutes policy-relevant spillover costs: spillover costs comprise all costs imposed on
persons external to a drinker arising from their consumption of alcohol (externalities) and
non-internalised costs to the drinker. Policy-relevant spillover costs comprise only those
spillover costs which can be affected by government policy (public policy interventions).
This discussion paper is seeking to develop a framework for estimating the costs of alcohol
misuse to the Australian community at a point in time which can be addressed by
appropriate policy measures and interventions. Given this, the relevant considerations when
defining what we mean by policy-relevant spillover costs include the following.

Policy-relevant spillover costs do not include private costs to the individual from alcohol
misuse.

Policy-relevant spillover costs should be defined in a way that assists in answering the
following questions:
 What impacts are relevant as a basis for possible government intervention in
private decisions to consume alcohol?
 What are the relevant policy costs and how do they differ by the severity of alcohol
misuse (short-run versus long-run alcohol misuse)?
 What avoidable costs are amenable to public policy initiatives and behaviour
change? What costs can be addressed by public policy measures?
 What public policy interventions best address/mitigate the policy-relevant costs from
alcohol misuse?
4.2
Possible policy-relevant spillover cost
categories
Several sources of possible policy-relevant spillover costs (externalities) arise in the context
of alcohol misuse. The broad categories covered in studies and discussed here include the
following:



Costs on the family members of a drinker;
Health care costs on drinkers and others;
Reduced workforce productivity and workforce participation;
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



Resources used in alcohol misuse;
Alcohol-related crime;
Child protection services; and
Road accidents.
It is acknowledged that this is not the only way to categorise the costs and that different
studies use different categorisations. The suggested categories are considered in more
detail below.
4.2.1
Costs to families
The misuse of alcohol affects not only drinkers but also those with whom their lives are
entwined. Families are an obvious example. Whether or not the costs to families are an
externality (spillover cost) that should be included in the spillover cost estimates, however, is
to subject to debate. The complexity of the debate is reinforced by the Australian Treasury
(2010) which stated:
“These costs are more limited in scope than those used in the cost of illness methodologies
that have been developed in the public health literature (for example, Collins & Lapsley 2008),
which also include many of the costs that individuals bear themselves. To estimate spillover
costs relevant for setting rates of tax, it is necessary to exclude private intangible costs (such
as pain and suffering), and the loss of household production from premature death or sickness.
That said, the distinction between private costs and spillover costs is not always clear. For
example, if a family utility and decision making model is used, alcohol-related violence against
family members and the loss of family disposable income are private costs; but, if an individual
utility and decision making model is used, costs borne by other family members are spillovers.”
Commonwealth Treasury (2010)
There is one school of thought that the cost to family members flowing from alcohol misuse
is not a spillover cost because family arrangements involve an informal arrangement
(contract) with the costs arising from alcohol misuse being regarded as a private cost that is
not an external cost nor a net cost to society. Eric Crampton et al (2011) has frequently
criticised those studies including these types of costs (i.e. BERL 2009) on the basis that this
overstates the net costs of alcohol misuse due to the informal contract between family
members. In Crampton’s (2011) view these costs are categorised as private in nature.
Other studies however have rejected this premise on the basis that families do not make the
decision on how much individuals drink (Marsden Jacob Associates 2012). It is notable that
the Productivity Commission(PC) considered, in relation to problem gambling, that it was
difficult to see how informal family ‘contracts’ can be enforced in the face of deception, the
disproportionate use of the family’s resources, and abuse and theft which frequently
characterised the behaviour of a problem gambler (Productivity Commission 1999).
In its problem gambling inquiry, the Productivity Commission (1999) concluded that ‘the
costs to family members flowing from problem gambling are genuine social costs and should
be included in the estimates of the costs of problem gambling. Likewise, other studies have
included separately the elements of costs arising from those affecting the family members of
the drinker, including counselling of family and friends and other costs to family member and
friends (i.e. out of pocket expenses and a loss of quality of life) (Laslett et al 2010, Marsden
Jacob Associates 2012, Collins and Lapsley 2008, BERL 2009).
Table 7 on the next page summarises some of the various approaches taken to categorising
and estimating the aspects of the cost to families from alcohol misuse, problem gambling
and obesity. It is clear from the table that different aspects have been included and excluded
and different methodologies used, resulting in inconsistent estimates of costs to families
from alcohol misuse.
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Table 7
Costs to families from alcohol misuse
Study
Methodology
Costs to families
Cost methodology
Marsden Jacob
Associates (2012)
Benefit-cost analysis of the
cost of misuse of alcohol in
Australia
Included costs to families as a cost external to the drinker
because:
 Families do not make the decision as to what the drinker
drinks
 Cannot enforce any informal intra-family contract
Costs included:
 out-of pocket expenses
 cost of time spent dealing with drinker and issues
 loss of quality of life (intangible cost)
Cost methodology used:
 counselling costs calculated
 adopted Laslett et al methodology but discounted to 10% of average weekly earnings
(AWE) applied to the time taken to deal with drinker and issues
 loss of quality of life = $53,000 per annum
Crampton et al
(2011)
A cost-of-illness methodology
was applied to estimate the
costs associated with
alcohol-use disorders in
Australia and New Zealand
Not included costs to families as considered to be an
‘internalised’ cost so not a spillover cost.
Not applicable.
Collins and
Lapsley (2008)
A cost-of-illness methodology
was applied to estimate the
cost of alcohol misuse to
Australia
Laslett et al (2010)
A cost-of-illness methodology
was applied to estimate the
range and magnitude of the
alcohol’s ‘harm to others’ in
Australia
Productivity
Commission
(1999)
An economic study on the
costs of problem gambling to
the community
Not included as own cost category.
Included intangible and tangible costs to the family.
Included costs of problem gambling on family members:
 emotional distress on immediate family members
 emotional distress on parents
 financial costs
Intangible costs – calculated loss of health wellbeing relevant to the drinker in the household
compared to those without one. Converted measure of reduction in quality of life measure
(QALY) with a ceiling placed on the monetary estimate using Australian GDP per capita.
Tangible costs – consider there to be minimal out of pocket expenses although pay as
taxpayer. Some of the out of pocket expenses (i.e. treatment costs) included in other cost
categories. Calculated cost of time lost spent looking after the drinker estimated as number of
hours spent and hourly equivalent of average weekly earnings (AWE).
Estimated number of family members affected by gambling family member using national
survey of gamblers.
Emotional distress – Applied a range of compensation schedules for pain and sufferings
derived from respective state/territory victim compensation legislation. Costs per person
derived from these estimates. These costs applied to number of family members affected by
associated pain and suffering according to:
 Emotional distress of parents
 Emotional distress of family members
 Emotional cost of relationship breakdown
 Emotional costs of suicide, attempted suicide
Adjusted numbers by ‘causality’ which reduced cost estimates by 20 per cent.
Adjusted for double counting. For example those reporting that they are depressed as a result
of gambling may have also reported attempted suicide.
Source: National Health Service 2013; Marsden Jacob Associates 2012; Crampton et al 2011; World Health Organization 2011; Laslett et al 2010; York Health Economics Consortium 2010; BERL 2009; Collins
and Lapsley 2008 and Begg et al 2007.
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4.2.2
Health care costs
On average, it is accepted that individuals who misuse alcohol consume more health care
than other individuals. In particular, it is recognised that long term heavy drinking results in
health issues for the drinker. There are also health care costs incurred by others as a result
of individuals consuming alcohol. People other than the drinker can also be killed or injured
in alcohol-related violence and incidents.
Depending on the study, the aspects of alcohol-related health care costs included differed
on the basis of:

the cost model adopted – whether a portion of private costs incurred by the drinker
should be included etc;

the cost aspect being measured – whether focusing on harms to others, cost to
government services, economic costs; and

the methodology adopted to estimate the costs – even where a single cost model is
agreed upon and adopted, there are differences between studies as to how the level of
costs are measured.
Crampton et al (2011) argue that:
“If health care were provided privately with actuarial rates assessed based on individual alcohol
consumption, incurred health costs falling on the drinker would best be deemed private; those
falling on external parties such as the victims of drunk drivers would count as external. No
private health expenditures other than those borne by external parties would then count as a
social cost of alcohol.”
However, others (Marsden Jacob Associates 2012) note that in Australia:
“Through the numerous cross-subsidies in the Medicare, private health insurance, the medical
safety net, disability and age pensions, the costs of health harms to drinkers are only partially
borne by drinkers themselves.”
Where it is recognised and accepted that drinkers only partially bear some of the health care
costs due to universal access to healthcare and community rating, the question about
whether or not the subsidy should be included as a cost is also controversial:

Crampton et al (2011) argue that it is a transfer from those non-drinking taxpayers to
drinking taxpayers with no resulting net cost to the community; while

Marsden Jacob Associates (2012) argue that despite the transfer there is a deadweight
loss associated with the increased taxation required to fund the provision of universal
healthcare which should be calculated (see Box 4 below).
Box 4
Efficiency cost of taxation to fund universal services
Governments raise taxation to meet their funding requirements. Most taxes result in some loss of
economic efficiency as they distort ‘usual’ economic behaviour.
The deadweight loss impact of taxation arises from the reduced incentive effects associated with the
additional tax. This is because it drives a wedge between prices paid and received for goods and
services. This has been estimated to be 27.5 cents in the dollar (Productivity Commission 2003).
The Australia’s Future Tax System (2010) reported that the marginal welfare losses from major
Commonwealth taxes included 24 cents in the dollar for person tax and 40 cents for company tax.
What this means is that for every $1 of personal income tax raised, community welfare is reduced
overall by 24 cents. Likewise for every $1 of company tax raised, community welfare is reduced
overall by 40 cents.
Source: ACIL Allen Consulting 2013.
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ACIL ALLEN CONSULTING
In addition, others argue that although individuals who misuse alcohol are not the only ones
who benefit from universal health care, this does not lessen the argument for governments
to intervene to decrease these costs where it is practical and cost effective to do so (Crowle
et al 2010). On this basis, the incremental increase in funding required for the universal
health system as a result of the need to address alcohol misuse should also be taken into
account when estimating the health care costs of alcohol misuse. Often it is difficult to
calculate the incremental increase in funding required, with cost studies apportioning
alcohol-related health care costs by estimating alcohol attributed fractions to total health
care expenditures.
Collins and Lapsley (2008) applied alcohol attributable fractions to health care expenditures.
These fractions were slightly positive for those health disorders where it was recognised that
it reduced the disease burden and negative where it was recognised it increased the
disease burden. This method resulted in the health care costs of both drinkers and others
being included in the estimated social costs of alcohol abuse to the Australian community.
Laslett et al (2010) and BERL (2009) adopted a similar cost models to Collins and Lapsley
(2009) but both adopted variants when estimating the level of alcohol-related health care
costs in their cost studies. For example, BERL assumed any positive attributable fractions to
alcohol were equal to zero.
By contrast, Crampton et al (2011) reduced health expenditures by removing that portion of
health care costs paid for privately by drinkers. However they still contended that the
estimate “…remains an overestimate absent better accounting for disorders ameliorated by
moderate alcohol consumption”.
Marsden Jacob Associates (2012) also excluded the cost of the harms to the health of the
drinkers, even where the bulk of these costs were paid for by others. This is because the
study focused on direct externalities, more specifically short-term negative externalities on
others. Given that the health costs to drinkers are primarily driven by levels of long-term
drinking, these costs were not included.
When analysing Collins and Lapsley’s cost estimates, Crampton et al (2011) also noted the
difficulty in determining whether alcohol misuse is the primary factor in contributing to health
care costs. Specifically, it was highlighted that alcohol use can often be a form of selfmedication among those with mental illness. As a result, the study queried whether the
alcohol attributable fractions applied to health care expenditures did not take into account
this factor, thereby resulting in the risk that the health care costs as a result of alcohol abuse
may be overstated.
The complexity involved in obtaining a picture of the true cost of alcohol-related health costs
were highlighted in the NSW Government’s recent study (AONSW2013) on the cost of
alcohol abuse to the NSW Government. Even in this single study there was a discrepancy
between cost estimates depending upon whether the cost of alcohol abuse was based on:


the cost to government of operating specific health programs to minimise harms; or
the cost to government of responding to incidents.
Table 8 below summarises some of the various approaches taken to categorising and
estimating the aspects of healthcare costs from alcohol misuse, problem gambling and
obesity. It is clear from the table that different aspects have been included and excluded,
resulting in inconsistent estimates of the health care spillover costs from alcohol misuse.
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Table 8
Health care costs from alcohol misuse
Study
Health care costs
Cost methodology
Benefit-cost analysis of the cost of
misuse of alcohol in Australia
Cost of harm to the health of the drinker are excluded from the cost
estimates, even where the bulk of these costs are paid for by others.
Cost of harm to the health of others (non-drinkers) where a result of
alcohol misuse.
Cost methodology involved estimating:
 health care costs for others adversely affected
by an alcohol-related motor accidents;
 health care costs for those (other than the
drinker) affected by alcohol-related violence
 counselling costs of drinkers and family
members.
A cost-of-illness methodology was
applied to estimate the costs associated
with alcohol-use disorders in Australia
and New Zealand
Where individuals pay for health care with rates assessed based on
alcohol consumption, private health costs falling on the drinker deemed
private and not included.
Where health care costs fall on external individuals (victims of drink
driving), included as a relevant cost.
Public healthcare costs considered to be a transfer to those incurring
health problems from those paying taxes. Regarded these transfers as
not having any efficiency consideration so no cost estimate associated
with the transfer. Health care costs estimated should be offset by
disorders ameliorated by moderate alcohol consumption.
Not applicable.
A cost-of-illness methodology was
applied to estimate the cost of alcohol
misuse to Australia
Healthcare costs estimated including:
 hospitals
 medical costs
 nursing homes
 ambulances
 pharmaceuticals
Apply alcohol-attributable aetiological fractions to
total medical and hospital expenditures in Australia
to estimate health care costs.
National Institute for Health and Clinical
Excellence (2010)
A cost-of-illness methodology was
applied to estimate the costs associated
with alcohol use disorders for England
Included the costs of healthcare usage, including number of alcohol
attributable:
 hospital admissions
 accident and emergency visits
 specialist treatment services
 ambulance services
 GP consultations etc
Calculated percentage of gross expenditure on
health care item attributed to alcohol misuse.
Laslett et al (2010)
A cost-of-illness methodology was
applied to estimate the range and
magnitude of the alcohol’s ‘harm to
others’ in Australia
Included health-related costs to others and to health services.
Applied alcohol-attributable aetiolgical fractions to
health expenditures (cost of hospitalisations).
Marsden Jacob Associates (2012)
Crampton et al (2011)
Collins and Lapsley (2008)
Methodology
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Study
York Health Economics Consortium
(2010)
Methodology
Health care costs
Cost methodology
A cost of illness methodology was
applied to estimate the cost of alcohol
misuse to the Scotland
Included costs associated with alcohol related health care,
including:
 GP and practice nurse consultations
 Community psychiatric team contacts
 Community dispensed drugs
 Laboratory tests
 Hospitalisations
 Emergency attendances
 Outpatient attendances
 Day hospital attendances
 Ambulance journeys
 Alcohol services
Health conditions divided into two categories:
 Wholly attributable alcohol conditions
 Partly attributable alcohol conditions
Apply alcohol-attributable aetiological fractions to total
number of visits to estimate costs.
Source: National Health Service 2013; Marsden Jacob Associates 2012; Crampton et al 2011; World Health Organization 2011; National Institute for Health and Clinical Excellence 2010; Laslett et al 2010; York
Health Economics Consortium 2010; BERL 2009; Collins and Lapsley 2008 and Begg et al 2007.
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4.2.3
Workforce labour and productivity
There are costs associated with absenteeism, workplace accidents and productivity loss as
a result of alcohol misuse. These include costs:


to the drinker as a result of foregone productivity and lower wages;

imposed on other employees due to the disruption and lower productivity of the drinker;
and

imposed on the business due to reduced output as a result of lower productivity.
imposed on the drinker’s family as a result of lower productivity due to time being spent
dealing with the drinker;
Whether these workforce labour and productivity costs should be included in estimates of
policy-relevant spillover costs is debateable.
Crampton et al (2011) reason that lost earnings due to premature death, retirement, illness
and absenteeism as a result of alcohol misuse are costs primarily incurred by the drinker.
This is because due to the contractual nexus between the worker and employer, the
worker’s reduced productivity is internal to her/his relationship with his employer, with the
employee less likely to receive promotions and salary increases over the longer-term.
Collins and Lapsley (2008) however argue that these costs are largely external as they are
shifted onto the employer and employee due to imperfect transparency of the worker’s
productivity decreasing from alcohol misuse to the employer.
Where a drinker loses his/her job due to alcohol abuse and ends up on unemployment
benefits, it can be argued that the drinker only partially bears the cost of alcohol misuse.
This is because of the cross-subsidy being received due to the social security safety net.
Putting aside the debate about whether the worker’s foregone earnings are a policy-relevant
spillover cost, it needs to be determined whether or not the unemployment benefits received
during unemployment is a transfer with a zero cost or a transfer with an associated welfare
loss.
In addition, others argue that although individuals who misuse alcohol are not the only ones
who benefit from the welfare safety net, this does not lessen the argument for governments
to intervene to decrease these costs where it is practical and cost effective to do so (Crowle
et al 2010). Therefore, it could be argued that the incremental increase in funding required
for the universal health system as a result of the need to address alcohol misuse should
also be taken into account when estimating the health care costs of alcohol misuse. The
Productivity Commission (1999) argued this when highlighting the importance of considering
the counterfactual when estimating the costs of problem gambling.
Crampton et al (2011) only considered workforce reduction, productivity loss and
absenteeism impacts imposed on third parties (i.e. co-workers not employers and family
members) by the drinker to be a policy-relevant external cost of alcohol misuse.
Table 9 below summarises the various approaches taken to categorising and estimating the
aspects of the workforce and labour productivity costs from alcohol misuse and problem
gambling to the community.
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Table 9
Workforce costs from alcohol misuse
Study
Methodology
Workforce related costs
Marsden Jacob Associates
(2012)
Benefit-cost analysis of the
cost of misuse of alcohol in
Australia
Did not include the costs to the drinker as an internal cost.
Also excluded the costs to the business, taxpayers and the wider
economy.
Included costs related directly to workers other than the drinker.
Crampton et al (2011)
A cost-of-illness methodology
was applied to estimate the
costs associated with alcohol
use disorders in Australia and
New Zealand
Not include cost of lost productivity due to premature death,
retirement, illness and absenteeism as a result of drinking. Argues
that contractual nexus between employer and drinking employee
so an internal cost.
Workforce reduction, productivity loss and absenteeism impacts
imposed on third parties by drinker a relevant external cost.
Adjust Collins and Lapsley estimates downwards as only estimates the
‘frictional’ cost imposed on employers by workforce reduction and
absenteeism.
Reduce Collins and Lapsley’s total net labour cost from $3.5 billion to
$179.6 million
Include cost of drinking employee’s loss of productivity as external
costs due to imperfect transparency of employee’s performance by
employer.
Calculated:
 reduction in workforce cost – estimated reduction in size of workforce.
Estimate derived from national accounts data of the different in potential
production levels between existing workforce and the assumed
counterfactual, no drug abuse, workforce.
 absenteeism cost – Estimated number of lost workdays using National
Drug Strategy Household Survey.
Collins and Lapsley (2008)
A cost-of-illness methodology
was applied to estimate the
cost of alcohol misuse to
Australia
Cost methodology
Based on Laslett et al estimates.
Productivity Commission (1999)
An economic study on the
costs of problem gambling to
the community,
Included:
 individuals’ loss of productivity from problem gambling
 cost of job change
To calculate productivity loss, used:
 average weekly earnings (AWE)
 extent of productivity loss of problem gamblers in counsellers estimated
to be around 7.9 per cent
 number of gamblers affected.
To calculate to of job change:
 lost income to gamblers
 job search costs
 staff replacement costs to employers
 transfer from taxpayers to those changing jobs via job start and related
payments.
Laslett et al (2010)
A cost-of-illness methodology
was applied to estimate the
range and magnitude of the
alcohol’s ‘harm to others’ in
Australia
Included the costs to others from ‘lower’ productivity due to a coworker’s alcohol misuse.
Cautions that estimate needs to be interpreted carefully as cannot
distinguish why workers work extra hours where work with a coworker who misuses alcohol.
Used a survey to estimate number of extra hours needing to be worked and
absenteeism due to a co-worker’s alcohol consumption.
Calculated number of hours and applied average hourly wage to estimate
costs.
York Health Economics
Consortium (2010)
A cost-of-illness methodology
was applied to estimate the
cost of alcohol misuse to the
Scotland
Included as productive capacity costs to the Scottish economy.
Estimated by calculating lost productivity due to alcohol-related:
 premature death
 presenteeism, and
 unemployment.
Estimated number of hours lost due to alcohol-related harms by type of
productivity cost and converted into a monetary cost by estimating average
hourly wage rate by type of worker.
Source: National Health Service 2013; Marsden Jacob Associates 2012; Crampton et al 2011; World Health Organization 2011; Laslett et al 2010; York Health Economics Consortium 2010; BERL 2009; Collins and
Lapsley 2008 and Begg et al 2007.
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4.2.4
Crime
It is universally accepted that there is a connection between alcohol misuse and crime
because the consumption of alcohol promotes risk taking and stimulates criminal activity
and violence (Marsden Jacob Associates 2012, Collins and Lapsley 2008). As noted by
Crampton et al (2011), ‘alcohol-related crime provides the most plausible source of truly
external social’ costs. Consequently most studies have estimated the cost of alcohol-related
crime and violence to society by estimating:



out of pocket expenses associated with property damage to others;
the cost of the loss of life and health-related costs; and
the cost to the criminal justice system.
When estimating the level of crime costs attributable to alcohol, Collins and Lapsley (2008)
note:
“only those crime costs should be estimated where a causal connection can be demonstrated
between the consumption of a drug and the commission of a crime. A mere association
between the two is insufficient. To confuse association with causation would result in a vast
overestimate of the costs of drug-attributable crime.”
Collins and Lapsley (2008).
While others (Crampton et al 2011) agree with this line of thought, numerous studies do
tend to differ on the methodology used to estimate the value of alcohol-related crime costs
as a result of alcohol misuse:

Collins and Lapsley (2008) calculated the foregone wages of prisoners as a crimerelated cost of alcohol when estimating the social costs of alcohol. In contrast,
Crampton et al (2011) revised this estimate down to zero on the basis that foregone
wages are considered to be an internalised private cost to the drinker (prisoner).

Collins and Lapsley (2011) and Marsden Jacob Associates (2012) both included the
costs of a range of crimes, including robbery, theft and burglary from a broad range of
sources and estimated out-of-pocket expenses associated with property damage.
Others (Productivity Commission 1999), however, have noted that in estimating the cost
of crime to society, it is important to separate transfers (such as stolen money) from the
real costs (such as the costs of disruption and fear).

Most studies attribute crime costs by drawing upon a method similar to Collins and
Lapsley (2008) where alcohol-attributable policing and court cost fractions are derived
from the proportion of police incidents related to alcohol. However, Crampton et al
(2011) considers that the methodology used by these studies tends to overly inflate the
true costs of alcohol-related crime. This is because Crampton et al argues that the
relevant attributable costs are the difference between the extra level of costs incurred if
the incidence of alcohol misuse was reduced to zero and the additional costs once
alcohol is misused (Crampton et al 2011).

This school of thought is supported by the Productivity Commission (1999) which noted
that in calculating the cost of government services from crime resulting from problem
gambling, it is important to consider the counterfactual. For example, if the incidence of
alcohol misuse was reduced to zero, what would be the extent of the crime and what
would be the additional costs to the criminal justice system incurred by taxpayers as a
result of alcohol-related crime?
Table 10 below summarises the various approaches taken to categorising and estimating
the aspects of the cost of crime from alcohol misuse and problem gambling to the
community.
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Table 10
Crime-related costs from alcohol misuse
Study
Marsden Jacob Associates
(2012)
Crampton et al (2011)
Collins and Lapsley (2008)
Methodology
Benefit-cost analysis of the
cost of misuse of alcohol in
Australia
A cost-of-illness methodology
was applied to estimate the
costs associated with
alcohol-use disorders in
Australia and New Zealand
A cost-of-illness methodology
was applied to estimate the
cost of alcohol misuse to
Australia
Crime related costs
Cost methodology
Includes crime-related costs, i.e:
 attributable administrative costs of the criminal justice and
property insurance systems
 burglary and robbery
 property damage to others
Considers crime-related costs to be most plausible source of
external social cost from alcohol. Includes:
 Crime costs only where a causal connection can be
demonstrated between the consumption of a drug and the
commission of a crime – a mere association between the
two is insufficient
 All the costs considered by Collins and Lapsley except
those of foregone wages of prisoners
Included crime-related costs where there was a causal
connection between consumption of a drug (alcohol) and the
commission of a crime.
Mere association is insufficient.
Types of crime-related costs included:
 tangible crime costs:
 policing
 criminal courts
 prisons
 foregone productivity of criminals
 property theft and damage
 administration of insurance against property theft and
damage
 intangible crime costs: loss of life from violence
Cost methodology used:
 Burglary and robbery costs estimated from Mayhew (2003) and adjusted for
inflation and reduction in crime rates – estimates of $141 million in 2009-10 for
burglary, theft and robbery
 Costs of property crime taken by scaling property crime figures using Collins
and Lapsley attribution figures for alcohol
 Property damage to others figures obtained from Laslett et al estimates of out of
pocket expenses associated with property damage ($1.2 billion when indexed to
2009/10)
Does not include foregone earnings of people incarcerated for alcohol-related
crimes as considered to be all private costs, not borne by the community.
Does not make a separate estimation of costs.
Evaluated total costs of an activity and estimated the proportion of costs causally
attributed to drug use. Attribution fractions were developed by the Australian
Institution of Criminology.
 Police cost data taken from Australian Institute of Criminology (AIC) 2002
National Police Custody Survey
 Criminal court costs net of receipts used. Allocated to individual crime types
according to proportion of police detainees classified by most serious offence
from AIC 2002 survey
 Prison cost data net of receipts used. Allocated to individual types of crime using
data from National prisoner Census and drug-attributable crime
 National Prisoner Census used to estimate value of potential output of prisoners
if they had not been in prison
 Property theft cost to community taken to be difference between value of goods
to owner and value to thief
 Insurance – compensation paid to the insured for property loss and costs of
administering insurance. Excludes vehicle theft and criminal property damage.
2001-02 insurance costs estimated to be $376m and then inflated to 2004-05
values
 Violence – costs of deaths, hospital episodes and bed days from alcoholattributable violence
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Study
Methodology
Crime related costs
Cost methodology
Value of money/goods stolen is a transfer. The cost of crime is the cost incurred to
protect property and costs of criminal justice system.
PC estimated value of money and goods stolen due to gambling-related crime in
addition to net costs to society through police incidents, court appearance and jail
terms resulting from gambling-related crime using National Gambling Survey.
Productivity Commission
(1999)
Laslett et al (2010)
An economic study on the
costs of problem gambling to
the community
A cost-of-illness methodology
was applied to estimate the
range and magnitude of the
alcohol’s ‘harm to others’ in
Australia
Include crime-related costs from problem gambling. Note that
it is important to make a distinction between transfers (stolen
money) and real costs (cost of disruption, fear, insecurity).
Estimated crime costs include:
 Cost of police incidents
 Court cases, and
 Jail sentences
This study examined the extent to which alcohol harms those
individuals surrounding the drinker. As such, it adopted a
similar methodological position to Collins and Lapsley (2008)
in that alcohol was considered to cause ‘harm’ in an instance
when the attributable fraction was greater than zero. In other
words, when the consumption of alcohol was adjudged to
adversely affect an individual at any time.
The definition of the costs of alcohol’s harm to others was:
“The value of harm affecting anyone due to/related to the
drinking of someone else in a given year.”
Study did not specifically identify costs of crime. However,
respondents reported $2,465m in out-of-pocket costs (from
known drinkers and strangers) as projected nationally from
damage to property or belongings which in their view
occurred because of another’s drinking.
Costs of government services (e.g. the police and the courts)
were not investigated.
 Estimate of $5m-$31m in transfers due to gambling-related crime (not taken to
be costs)
 Police incident cost - estimate of 6,300 people involved in an incident with the
police from their gambling activities in last 12 months. Used 1998 cost estimate
of $510 per incident to obtain $3.2m for Australia
 Court costs – 700 gambling related court cases p/a at an estimated $8,000 per
case = $5.6m p/a. Cost per case estimate informed by a 1998 NSW study
 Jail sentences – used estimated 3,000 persons jailed, estimated length of
gambling (8.9 years) and assuming incarceration occurs only one in a problem
gambling cycle = 336 persons incarcerated per year due to gambling. Estimate
of 3.4 months jail period from ABS data and 1997-98 cost per prisoner per year
of $52,983 = $5.1m per year for cost of prison terms relating to problem
gambling
Study did not specifically identify costs of crime.
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Study
York Health Economics
Consortium (2010)
BERL (2009)
Methodology
Crime related costs
Cost methodology
A cost-of-illness
methodology was applied
to estimate the cost of
alcohol misuse to the
Scotland
Estimated custody costs associated with alcohol-specific
offences:
 Persons detailed for drunkenness but not proceeded against
in court
 Persons detained for drunkenness and proceeded against in
court
 Persons detained for drink driving
Estimated court and prosecution costs:
 Sheriff summary court; Sheriff summary prosecution; District
court prosecution
Costs associated with penalties imposed for alcohol-specific
offences:
 probation; supervised attendance order; restriction of liberty
order; and fine
Costs relating to two categories – (a) costs in anticipation of,
consequence of and response to crime (drunk as one reason for
crime); (b) costs in anticipation of, consequence of and response
to crime (drunk at time of crime):
 wounding; robbery; sexual offences; burglary in a dwelling;
burglary not in a dwelling; theft from vehicle
 theft of vehicle; theft from a shop; theft – not vehicle; criminal
damage; common assault
Cost of crimes to the criminal justice system.
A cost-of-illness
methodology was applied
to estimate the cost of
alcohol misuse to New
Zealand
The BERL study replicates the methodology used by Collins and
Lapsley (2009). It assumes that alcohol misuse occurs when the
attributable fraction is greater than zero.
Crime costs considered:
 customs (drug enforcement programme, alcohol excise and
customs duty operations)
 community costs – victims of crime (preventative expenditure,
property losses, lost output, health service use and intangible
costs)
 police resources diverted due to harmful alcohol and drug
consumption
 defence force expenditure
 anti-drink driving advertising campaigns (not taken as a social
cost)
 court related expenditure
 prisons
 community sentences
Estimates of Scottish custody costs taken from 2003 Cabinet Office estimates for
alcohol-specific arrests and alcohol-related arrests and uplifted to 2007-08 prices.
Also referred to estimated average cost of holding prisoner in a police cell in
England and Wales.
Court and prosecution costs taken from Scottish Government data – estimates
used where needed.
Cost associated with imposing penalties estimated from sources including:
published information on annual average cost per prison place; published penalties
uplifted to 2007-08 prices.
Costs of alcohol-related crimes estimated by applying English alcohol attributable
fractions to Scottish crime figures; applying a multiplier to account for underreporting of crime; and using Home Office reports (2000 and 2005) estimating the
cost of specific crimes and inflated to 2007-08 prices.
Customs costs – derived from estimates of total budget and drug enforcement
expenditure and estimated budget priorities. Cost of collecting alcohol duties
estimated from Customs Service expenditure weighted by duties related to alcohol.
Community costs calculated as number of alcohol-and-drug-attributable crimes
multiplied by average cost per offence. Information obtained from Treasury study
and NZ Arresstee Drug Abuse Monitoring programme.
Police expenditure was estimated using total police expenditure net of revenue,
allocating expenditure to offence categories using police data, determine proportion
of offences due to alcohol or other drug use.
Defence force expenditure relates to that for the RNZAF’s No 3 Squadron which
supports the police drug eradication programme.
Anti-drink driving advertising campaign costs taken from actual expenditure.
Court costs estimated using net court-related expenditure and allocating
expenditure to offence categories using Police times.
Prison expenditure estimated from cost of incarcerating people due to alcohol-andalcohol related crime and providing specialist drug treatment units in prisons. Also
includes the estimated lost outputs due to the incarceration of prisoners.
Community sentence expenditure based on numbers of people serving sentences
in 2005-06.
Source: National Health Service 2013; Marsden Jacob Associates 2012; Crampton et al 2011; World Health Organization 2011; Laslett et al 2010; York Health Economics Consortium 2010; BERL 2009; Collins
and Lapsley 2008 and Begg et al 2007.
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4.2.5
Resources consumed in alcohol misuse
Individuals spend a considerable amount of money on consuming alcohol — Australian
drinkers consumed 183 million litres of alcohol in 2010-11 equivalent to 10 litres per drinker
per year. It is estimated that $32.35 was spent on average per week by Australian
households during 2009-10 (ABS 2013). Drinkers who misuse alcohol spend significantly
more.
There may be a case for apportioning a fraction of resources consumed in alcohol misuse
where drinkers are addicted and the consumption of alcohol does not yield any benefits or
benefits to sufficiently cover the resources consumed on alcohol. To do this, information on
the percentage of addicted drinkers is needed. Collins and Lapsley (2008) included around
$1.7 billion spent by heavy drinkers as a social cost of alcohol. This was made on the basis
that it was assumed that 30 per cent of alcohol consumption was by addicted drinkers.
However Crampton et al (2011) criticised the inclusion of the entire consumption of alcohol
by addicted drinkers as a cost on the basis that evidence had not shown that:
“The proportion of addictive consumption that imposes costs on the drinker not only in excess
of benefits for those extramarginal units but also of sufficient magnitude to outweigh consumer
surplus enjoyed on prior units of consumption, the best approach is to consider this an internal
rather than external cost of alcohol consumption, and therefore policy irrelevant.”
In its Inquiry into Problem Gambling, the PC (1999) did not include the resources spent by
problem gamblers on gambling. Nevertheless, the PC was concerned by the costs imposed
on others by the debts of problem gamblers and the costs associated with bankruptcy by
problem gamblers as a result of this high spending on gambling.
Including the total resources consumed in alcohol misuse as a policy-relevant spillover cost
can only be made if it is assumed that:

the drinker has made an error or made a decision to consume alcohol as a result of a
lack of information about the risks associated with alcohol misuse; and

there are no benefits to the drinker from consuming the alcohol.
Table 11 below summarises the major studies and outlines whether or not this category of
cost was included in cost estimates.
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Table 11
Cost of alcohol resources consumed in alcohol misuse
Study
Methodology
Alcohol resources consumed
Cost methodology
Marsden Jacob
Associates (2012)
Benefit-cost analysis of the cost of
misuse of alcohol in Australia
Not included – study focussed on estimating
the cost of harms to others.
Not applicable.
Crampton et al (2011)
A cost-of-illness methodology was
applied to estimate costs associated
with alcohol-use disorders in Australia
& NZ
Not included because study assumed drinkers
are rational when making decision to consume
alcohol and costs offset by private benefits to
drinker.
Not applicable.
Collins and Lapsley
(2008)
A cost-of-illness methodology was
applied to estimate the cost of alcohol
misuse to Australia
Included total expenditure.
Assume 30 per cent
of alcohol consumed
is consumed without
benefits by addicted
drinkers.
Productivity Commission
(1999)
Economic study on costs of problem
gambling to community
Not included expenditure by problem
gamblers.
Concerned by the costs imposed on others by
the debts and the costs associated with
bankruptcy by problem gamblers as a result of
high spending on gambling.
Not applicable.
Laslett et al (2010)
A cost-of-illness methodology was
applied to estimate the range and
magnitude of the alcohol’s ‘harm to
others’ in Australia
Not included.
York Health Economics
Consortium (2010)
A cost-of-illness methodology was
applied to estimate the cost of alcohol
misuse to the Scotland
Not included.
Source: Marsden Jacob Associates 2012; Crampton et al 2011; Laslett et al 2010; York Health Economics Consortium 2010; Collins and
Lapsley 2008.
4.2.6
Child protection services
Another external cost to the drinker which has been included in some of the alcohol-related
cost studies has been the attributable costs of the child protection system.
Both in Australia and overseas, alcohol misuse has been found to have a significant role in
stimulating violence and abuse within the family, often involving children.
Laslett et al (2010) explored the alcohol driven child protection costs in Victoria, reporting
that tangible child protection system costs of $672 million in 2010 could be attributed to
alcohol. Likewise, Marsden Jacob Associates (2012) found that $694 million child protection
system costs could be attributed to alcohol. The NSW Government also recently estimated
that child protective services currently costs the NSW Government (2013) $91.1 million per
year. In addition, once out-of-home services and intensive family services were taken into
account, the cost increased to $263.1 million per annum.
Australian studies are not alone is estimating the cost of child protection services as a result
of alcohol misuse. A study on the annual societal cost of alcohol misuse in Scotland
estimated that 24 per cent of gross expenditure on social work related to children resulted
from alcohol misuse (Varney and Guest 2002). An update of the study estimated the 200708 cost of alcohol attributable to children and families from alcohol to be around 208.5
million pounds (York Health Economics Consortium 2010).
Table 12 below summarises the major studies and outlines whether or not this category of
cost was included in the cost estimates.
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Table 12
Child protection related costs from alcohol misuse
Study
Methodology
Child protection costs
Cost methodology
Marsden Jacob
Associates (2012)
Benefit-cost analysis of the cost of
misuse of alcohol in Australia
Included attributable costs of child protection
system.
Proportion of costs
of child protection
systems by the
respective State and
Territory
governments.
Crampton et al (2011)
A cost-of-illness methodology was
applied to estimate costs associated
with alcohol-use disorders in Australia
& NZ
Not included.
Not applicable.
Collins and Lapsley
(2008)
A cost-of-illness methodology was
applied to estimate the cost of alcohol
misuse to Australia
Not included.
Not applicable.
Productivity Commission
(1999)
Economic study on costs of problem
gambling to community
Not include although included the costs of
police incidents, jail sentences.
Did include the cost to the family but not
government costs related to children and the
family (other than justice system costs directly
related to the problem gambler).
Not applicable.
Laslett et al (2010)
A cost-of-illness methodology was
applied to estimate the range and
magnitude of the alcohol’s ‘harm to
others’ in Australia
Included costs to the child protection system
from alcohol harms to others in Australia.
Applied a
percentage to the
number of child
protection cases due
to alcohol (around
32 per cent).
York Health Economics
Consortium (2010)
A cost-of-illness methodology was
applied to estimate the cost of alcohol
misuse to the Scotland
Included proportion of social work expenditure
on children and families attributed to alcohol.
Proportion of costs
of social work
expenditure by
government
attributed to alcohol.
Cost of alcohol abuse to
the NSW Government
(2013)
Study measuring the total costs
incurred by government as a result of
alcohol abuse.
Measured the child protection costs related to
NSW government responding to alcohol abuse
estimates.
Also, measured broader costs including ‘out-ofhome services’ and ‘intensive family support’
costs.
Proportion of
government
expenditure in these
areas.
Source: Marsden Jacob Associates 2012; Crampton et al 2011; Laslett et al 2010; York Health Economics Consortium 2010; Collins and
Lapsley 2008; Audit Office of NSW 2013.
4.2.7
Road accidents
The connection between road accidents and alcohol consumption is universally
acknowledged, resulting in the introduction of blood alcohol testing regimes in Australia and
overseas. The costs from a motor accident involving the misuse of alcohol include:



damage to vehicles and other property;
injury and hospitalisation; and
loss of life to the drinker and others.
Despite the acceptance of the connection between alcohol misuse and alcohol, there is a
discrepancy in how the levels of road accident costs are estimated.
Some studies have included the road accident costs incurred by drink drivers and to others
(Collins and Lapsley 2008). Conversely other studies have categorised road accident costs
incurred by the drinker as a private cost and not included in the cost estimates – alcohol
cost estimates therefore only include the costs to others (the non-drinker) from road
accidents. In doing so, Crampton et al (2011) reduced the estimates of Collins and Lapsley
(2008) stating:
“If we continue to assume that some twenty percent of road accident victims are external to the
drink driver’s vehicle, then we can allocate approximately twenty percent of property damage
costs as being external and policy relevant, along with the totality of travel delay and policing
costs.”
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Similarly to other cost estimates, there is a degree of controversy with respect to
apportioning the costs of crime to alcohol misuse. Crampton et al (2011) have criticised the
estimates by Collins and Lapsley (2008) as being overstated because the AIC data notes
that a very high proportion of those arrested for drink driving had other drugs in their
systems when blood testing was conducted, which subsequently needs to be accounted for
in the apportionment fraction. How this should be addressed in the first instance is not clear.
Table 13 below summarises the major studies and outlines whether or not this category of
cost was included in cost estimates.
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Table 13
Road accident costs from alcohol misuse
Study
Methodology
Road accident costs
Cost methodology
Marsden Jacob Associates
(2012)
Benefit-cost analysis of the
cost of misuse of alcohol in
Australia
Included loss of life and hospital/health costs of others.
Explicitly excluded road accident costs incurred by drink driver.
Cost methodology used $3.5 million per death.
Specifically rejected a view that passengers get into a vehicle with full
and perfect knowledge of a driver’s level of intoxication.
Crampton et al (2011)
A cost-of-illness methodology
was applied to estimate the
costs associated with
alcohol-use disorders in
Australia and New Zealand
Considered to be second most plausible external cost of alcohol abuse.
Did not include costs incurred on the driver’s vehicle and passengers.
Does not separately calculate costs but takes a modification of Collins
and Lapsley’s (2008) figures.
Collins and Lapsley (2008)
Laslett et al (2010)
York Health Economics
Consortium (2010)
A cost-of-illness methodology
was applied to estimate the
cost of alcohol misuse to
Australia. Study used a
demographic approach
(rather than human capital
approach).
A cost-of-illness methodology
was applied to estimate the
range and magnitude of the
alcohol’s ‘harm to others’ in
Australia
A cost-of-illness methodology
was applied to estimate the
cost of alcohol misuse to the
Scotland
Included the following:
Human costs: medical, ambulance, rehabilitation*, long-term care*,
labour in the workplace*, labour in the household*, quality of life*, legal
correctional services, workplace disruption, premature funerals, coroner.
Vehicle costs: repairs, unavailability of vehicles, towing.
General costs: travel delays, insurance administration, police, nonvehicle property damage, fire and emergency services.
Costs apart from those indicated by * were estimated from a 2000
Bureau of Transport Economics study which gave 1996 estimates.
These estimates are then allocated to the abuse of alcohol and illicit
drugs and inflated to 2004-05 values.
Costs indicated with * were calculated using a different methodology.
Value of the quality of life lost as a result of death or injury is calculated
referring to compensation payments from the Victorian Transport
Accident Commission.
Number of deaths and hospitalisation of children (0-14 years) attributed
to alcohol consumed by others from road crashes – pedestrian and nonpedestrians.
Number of deaths and hospitalisations among those aged 15 years and
older attributable to alcohol consumed by others – pedestrians and nonpedestrians.
Economic costs of morbidity of victims of others’ drinking from road
crashes involving pedestrians and non-pedestrians.
Did not include pre- or post-hospital costs (emergency department,
rehabilitation, re-admission, or follow-up visits), or long-term health
injuries.
Intangible costs were not included.
Deaths of people from road crashes estimated from total deaths and
analysis of impaired driver road crash data collected by the Australian
Transport Safety Bureau.
Similar approach used to determine alcohol-attributable hospitalisation
days and bed days.
Morbidity costs are direct hospitalisation and opportunity costs, with bed
days during hospitalisation equating to lost output. Opportunity cost is
taken to be lost output, costed using daily earnings from weekly average
earnings (ABS 2008). For children aged 0-14, opportunity cost was not
calculated (taken to be benefit they lose in not going to school).
Cost of alcohol-related accident and emergency attendances (this may
cover more incidents than just motor vehicle accidents).
Fire services responding to alcohol-related road traffic accidents.
Number of road traffic accidents and number of associated bed days –
pedestrian and non-pedestrian.
Used estimates of 2%-40% of Ambulance and Emergency attendances
being alcohol-related problems, derived from studies over the period
2002-2008.
The cost of fire services responding to alcohol-related road traffic
accidents was unable to be quantified.
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Study
Methodology
Road accident costs
Cost methodology
BERL (2009)
A cost-of-illness methodology
was applied to estimate the
cost of alcohol misuse to
New Zealand
Costs excluded health care, justice sector and intangibles to avoid
double-counting (included in other calculations).
Costs included loss of output, property damage, travel delays, insurance
administration, and fire/emergency service.
Road crash costs estimated from various sources including Fire Service,
New Zealand Transport Agency, and Insurance Council of New Zealand.
Number of road crash fatalities scaled to allow for under-reporting of
non-fatal accidents.
Lost output – based on workers’ compensation payments data and
alcohol and other drugs attributable fractions.
Begg et al (2007)
Burden of disease attributed
to alcohol exposure
measured in disability
adjusted life years (DALYs)
for Australia
Number of deaths due to road traffic accidents attributable to alcohol
Burden (DALYs) due to road traffic accidents attributable to alcohol
Drew on data.
DALY is amount of time lost due to both fatal and non-fatal events.
Source: National Health Service 2013; Marsden Jacob Associates 2012; Crampton et al 2011; World Health Organization 2011; Laslett et al 2010; York Health Economics Consortium 2010; BERL 2009; Collins
and Lapsley 2008 and Begg et al 2007.
COUNTING THE COSTS OF ALCOHOL POLICY-RELEVANT COSTS TO AUSTRALIA
45
ACIL ALLEN CONSULTING
QUESTIONS FOR
CONSULTATION
9. Do you agree with the proposed definition of what constitutes policy-relevant spillover
costs? If not, what should be the definition of policy-relevant spillover costs?
10. Which tangible and intangible costs should be adopted when measuring the policyrelevant spillover costs of alcohol misuse? Why?
COUNTING THE COSTS OF ALCOHOL POLICY-RELEVANT COSTS TO AUSTRALIA
46
ACIL ALLEN CONSULTING
5
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47
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COUNTING THE COSTS OF ALCOHOL POLICY-RELEVANT COSTS TO AUSTRALIA
49
ACIL ALLEN CONSULTING
Consultation questions
1. Which one of the three models of drinker rationality do you support: full rationality,
bounded rationality, or limited rationality?
2. If you do not support any one model of drinker rationality, to what extent do you think
drinkers are rational for the purposes of identifying the spillover costs of alcohol
misuse?
3. Do you support including both the tangible and intangible costs of alcohol misuse when
estimating the policy-relevant spillover costs of alcohol misuse? If not, which should be
included and why?
4. Should some categories of costs from alcohol misuse be excluded where there is a
degree of uncertainty in estimating their levels? If so, which categories of costs should
be included and which should be excluded?
5. Should the prevalence method or incidence method be used in assessing the policyrelevant costs of alcohol? Why?
6. What discount rate should be applied to those costs identified as being relevant which
are incurred in the future so that they reflect the appropriate net present value?
7. Should a harmful level of alcohol consumption be identified for the purpose of
developing a policy-relevant cost of alcohol study?
8. Should an input or output-based approach to assessing the harms from alcohol be used
in determining the policy-relevant costs of alcohol?
9. Do you agree with the proposed definition of what constitutes policy-relevant spillover
costs? If not, what should be the definition of policy-relevant spillover costs?
10. Which tangible and intangible costs should be adopted when measuring the policyrelevant spillover costs of alcohol misuse? Why?
COUNTING THE COSTS OF ALCOHOL POLICY-RELEVANT COSTS TO AUSTRALIA
50
Appendix A
Concept of a standard drink
Alcohol consumption is typically measured by a standard drink, however the definition of
what constitutes a standard drink varies internationally — see the following table.
Table A1 Standard drink definition and alcohol consumption guidelines in selected countries
Weekly maximum
alcohol consumption
guidelines for Men
(grams of pure
alcohol)
Daily maximum
alcohol
consumption
guidelines for Men
(grams of pure
alcohol)
15 standard drinks
(204g)
10 standard drinks
(136g)
12 grams
21 standard drinks
(252g)
14 standard drinks
(168g)
Finland
11 grams
15 standard drinks
(165g)
10 standard drinks
(110g)
France
10 grams
3 standard drinks
(30g)
3 standard drinks
(30g)
Germany
N/A
24g of pure alcohol
12g of pure alcohol
Ireland
10 grams
21 standard drinks
(210g)
14 standard drinks
(140g)
Italy
12 grams
3.3 standard drinks
(40g)
3.3 standard drinks
(40g)
Japan
19.75 grams
1-2 standard drinks
(19.75-39.5g)
1-2 standard drinks
(19.75-39.5g)
Netherlands
10 grams
2 standard drinks per
day (20g)
1 standard drink per
day (10g)
New Zealand
10 grams
3 standard drinks
(30g)
2 standard drinks
(20g)
21 standard drinks
(210g)
14 standard drinks
(140g)
Poland
10 grams
2 standard drinks
(20g)
1 standard drink
(10g)
10 standard drinks
(100g)
5 standard drinks
(50g)
Portugal
14 grams
2-3 standard drinks
(28-42g)
1-2 standard drinks
(14-28g)
Spain
10 grams
3 standard drinks
(30g)
3 standard drinks
(30g)
Switzerland
10-12 grams
2 standard drinks
(24g)
2 standard drinks
(24g)
United Kingdom
8 grams
3-4 standard drinks
(24-32g)
2-3 standard drinks
(16-24g)
United States
14 grams
1-2 standard drinks
(14-28g)
1 standard drink
(14g)
14 standard drinks
(196g)
7 standard drinks
(98g)
Standard Drink
definition (grams of
pure ethanol)
Daily maximum
alcohol consumption
guidelines for Men
(grams of pure
alcohol)
Daily maximum
alcohol consumption
guidelines for
Women (grams of
pure alcohol)
Australia
10 grams
2 standard drinks
(20g)
4 standard drinks
(40g) on one
occasion
2 standard drinks
(20g)
4 standard drinks
(40g) on one
occasion
Austria
10 grams
2.4 standard drinks
(24g)
1.6 standard drinks
(16g)
Canada
13.6 grams
3 standard drinks
(40.8g)
4 standard drinks
(54.4g) on one
occasion
2 standard drinks
(27.2g)
3 standard drinks
(40.8g) on one
occasion
Czech Republic
N/A
24g of pure alcohol
16g of pure alcohol
Denmark
Country
Source: http://www.health.gov.au/internet/alcohol/publishing.nsf/Content/standard; http://www.alcohol.org.nz/alcohol-you/whats-standard-drink;
http://rethinkingdrinking.niaaa.nih.gov/whatcountsdrink/whatsastandarddrink.asp; http://www.yourdrinking.ie/about-alcohol/what-is-a-standarddrink/; http://www.alcoholandyou.org.uk/facts/units.html; http://www.rethinkyourdrinking.ca/standard-drinks.php;
http://www.icap.org/table/Internationaldrinkingguidelines
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