Saturday, November 6, 2010

The Pitfalls of Calculating Bad Behavior's True Cost

by Carl Bialik

Wall Street Journal
November 6, 2010

Warning: You might get sticker shock from reading several recent health studies.

A murder costs society $17.25 million, or about 50 times an armed robbery, according to a research team from Iowa State University. A paper from Spain put the average "price" of a pack of cigarettes for men at about $150. And a group of U.K. health experts considered a range of social, economic and health costs when trying to determine which recreational drug was most harmful. Alcohol won.

Sticker shock is the point of these studies, which attempt to classify societal ills in terms anyone can understand. By assigning a price tag that sums up medical, economic and other burdens, researchers are hoping to influence policy makers who weigh spending on these concerns against other priorities. And if a high dollar figure captures the public's attention, as all the recent studies did, so much the better.

"Sometimes for these studies, their main purpose is shock value," says Kenneth Warner, dean of the University of Michigan's school of public health.

That doesn't mean the studies lack merit. Crime and drugs that shorten lifespans or diminish quality of life impose real costs in productivity and medical spending, say economists. But measuring these costs can be tricky, especially when it comes to assigning value to a year of human life. The recent studies had varying levels of success grappling with these issues.

Looking at five major crimes—murder; rape; armed robbery; aggravated assault; burglary—Iowa State researchers estimated the costs to victims, to the judicial system, and to the economy from loss of productivity from the perpetrator. Then they tacked on a more-subjective measure, willingness to pay, which attempts to quantify how much an average American would spend to avoid experiencing these crimes. Derived from surveys on spending on personal security, the measure was meant to capture the negative experience of the crime itself. For all five crimes, it represented the bulk of the cost.

Willingness-to-pay estimates trouble some researchers because people might overestimate how much they would actually spend.


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