How Cost-of-Illness Studies Can be Made More Useful for Illicit Drug Policy Analysis

Appl Health Econ Health Policy 2006; 5 (2): 75-85REVIEW ARTICLE 1175-5652/06/0002-0075/$39.95/0

2006 Adis Data Information BV. All rights reserved.

How Cost-of-Illness Studies Can beMade More Useful for Illicit DrugPolicy AnalysisTimothy J. Moore1,2 and Jonathan P. Caulkins3

1 Turning Point Alcohol and Drug Centre, Fitzroy, Victoria, Australia2 Department of Economics, University of Melbourne, Melbourne, Victoria, Australia3 CMU Qatar Campus and H. John Heinz III School of Public Policy & Management, Carnegie

Mellon University, Pittsburgh, Pennsylvania, USA

ContentsAbstract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 751. Substance Abuse Cost-of-Illness Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 772. Developing a Better Estimate of the ‘Cost of Illness’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

2.1 Developing ‘Best’ Rather Than ‘Conservative’ Estimates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 792.2 An Alternative to Being ‘Conservative’: Explicitly Acknowledging Uncertainty . . . . . . . . . . . . . . . 802.3 Disaggregating Cost Estimates by Drug Type . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

3. Key Conceptual Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 813.1 The Intangible Costs of Drug Dependence Itself . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 813.2 Property Crime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 823.3 Black Markets and Systemic Crime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 823.4 Skill Formation as a Spillover Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 833.5 Other Conceptual Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

4. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

Cost-of-illness (COI) studies seemingly provide a solid foundation for quanti-Abstractfying the potential benefits of illicit drug policy interventions that reduce drug useat the population level. However, their usefulness is severely limited. In thispaper, we suggest several improvements to substance abuse COI studies. The firstset of improvements can be implemented with little change to the currentframework: developing estimates that reflect the best available information, ratherthan using lower bound estimates that represent ‘conservative’ figures; dealingwith uncertainty explicitly by developing estimation ranges; and disaggregatingsocial costs by particular illicit drug types. The second set of improvementsaddress key conceptual problems in transferring a health approach to a ‘condition’where healthcare costs are a minor component: dealing with the intangible costs ofdrug dependence; valuing property crime; including systemic crime; and consid-ering the spillover effects of drug abuse on human capital formation. COI studiescan become valuable sources of policy-relevant information if their authorsimprove the current approach by making changes such as those identified here.

76 Moore & Caulkins

There is widespread dissatisfaction with drug mated the costs relating to substance abuse, specifi-policy1 in many countries, notably the US.[1] The cally the abuse of alcohol and illicit drugs (andlikelihood of radical reforms, such as legalising sometimes tobacco). Substance abuse COI studiescurrently banned substances, seems limited. Hence, have recently been conducted in the US,[7-9] Austra-for most countries, opportunities for reducing the lia,[10-12] Canada,[13] France[14] and Spain.[15] Theresocial costs associated with the use of illicit drugs have also been two editions of the Internationalmay stem primarily from the better allocation of Guidelines for Estimating the Costs of Substancegovernment resources across various broad drug Abuse (hereafter referred to as the ‘Internationalcontrol strategies, such as interdiction, domestic law Guidelines’) resulting from collaborations betweenenforcement, treatment and prevention. authors of these studies.[16,17]

Some drug control programmes can be evaluated COI approaches have been severely criticisedat the individual level, with standard programme for: not informing policy making or priority setting,evaluation methods used to assess their relative due to not considering the effectiveness of policycosts and benefits. This is frequently done for sub- measures; providing no information on marginalstance abuse treatment, where most benefits accrue costs; combining costs generated by a health condi-to programme participants within a few years of the tion with the costs of attempting to address theintervention.[2,3] For other drug policies, notably condition; and having a range of methodologicalschool prevention programmes and drug law en- inconsistencies and limitations.[18-24] Critics argueforcement, the benefits are diffuse and/or delayed, that COI studies should not be undertaken.[19-23] Inand assessment often involves modelling how the response, COI proponents argue that such studiesinterventions affect the prevalence of substance educate policy makers, assist in mobilising attentionabuse or quantities of drugs consumed at the aggre- and resources to address health problems, and pro-gate level. Outcomes need to be monetised to allow vide information that can be used in economic eval-the benefits to be compared with the costs. uations.[24-26]

Cost-of-illness (COI) studies, as the primary Criticisms of substance abuse COI studies havesource of population-wide information on the social largely mirrored those in the broader debate. Incosts of illicit drug use,[4] are already being used to 1999, the publication of an estimate of the socialmonetise the outcomes of policy simulation models. costs of substance abuse in the US occasioned aUS COI figures have been used to give a sense of forum in Addiction. The four commentatorswhether the cost-effectiveness numbers for school- criticised the study because costs were inconsistent-based prevention programmes were large or small ly defined, narrowly measured and estimated usingrelative to programme costs.[5] Australian COI too much “guessing.”[4,27-29] Reuter[27] went so far asfigures have been apportioned to various drugs on a to describe the study as “an unsatisfactory answer to‘per kilogram’ basis in order to assess how the social a question of dubious importance” (page 638).cost of drugs seized by the Australian Federal Police Yet, substance abuse COI studies, and COI stud-compare with the costs of policing operations.[6] ies generally, continue to be undertaken in much the

COI studies attempt to measure the value of net same way as before. Since the Addiction commenta-resources unavailable for other purposes because of ries, new or updated substance abuse COI estimatesthe effects of a health condition, such heart disease, have been produced for several countries includingcancer, diabetes mellitus, stroke and Alzheimer’s the US,[8,9] Australia[12] and Spain,[15] and one isdisease.[7] Since the 1970s, COI studies have esti- currently being conducted in Canada.[30] COI studies

1 ‘Drug policy’ here refers to policies aimed at minimising the use of prohibited substances (e.g. cocaine, heroin,amphetamines, cannabis) or the harmful effects associated with their use. Drug policies include school-based prevention,public health campaigns, substance abuse treatment, law enforcement and harm reduction programmes (e.g. needle andsyringe programmes).

2006 Adis Data Information BV. All rights reserved. Appl Health Econ Health Policy 2006; 5 (2)

Making Cost of Illness Useful for Policy Analysis 77

are the most commonly funded, large-scale studies multifaceted issue such as drugs. We conclude byof the aggregate economic consequences of illicit considering the importance of such changes.drug use.

We proceed on the basis that: (i) drug policy 1. Substance Abusedevelopment needs population-wide information on Cost-of-Illness Studiesthe costs generated by illicit drug use; (ii) substanceabuse COI studies are the best currently available

COI studies aim to measure diseases’ socialsource of this information; and (iii) COI studies will

costs, valued as opportunity costs, within a commoncontinue to be popular with governments and other

framework explicitly designed to reflect a health-funding bodies. There is significant spending on

oriented view of the world. The International Guide-illicit drug policies in developed countries,2 most of

lines[17] provides a pithy summary of the processwhich has not been subjected to economic evalua-

undertaken and primary outcome sought:tion. Hence, we suggest changes that would make

“Superficially a COI study involves combining anthe next generation of substance abuse COI esti-

epidemiological database with financial informa-mates more useful to policy analysts.

tion to generate an amount valued in monetaryFocus is given to recent studies for the US and terms which purports to say something about the

Australia, where substance abuse COI studies have costs to society of a particular disease. Typically thebeen produced quite regularly for a number of years. magnitude is large, or large enough, to be used toHarwood et al.[7] produced a substance abuse COI draw attention to the condition as one to whichestimate for the US in 1992, which was then extend- policy makers, research funders, and researchers,ed to 1998[8] and 2002[9] for the Office of National ought to pay attention” (page 6).Drug Control Policy (ONDCP). Collins and Lapsley While this structure is common across COI stud-produced Australian substance abuse COI estimates ies, there are several fundamental issues authorsfor 1988,[10] 1992[11] and the 1998/9 financial must decide upon. When it comes to illicit drugyear.[12] These can be considered typical of sub- abuse, this even includes determining the particularstance abuse COI studies more generally: authors of ‘disease’. Harwood et al.[7] confine their analysis tothese studies are among the authors of the Interna- costs relating to abuse and dependence (psychiatri-tional Guidelines. cally defined). Collins and Lapsley[12] consider any

In order to focus on the overall approaches, limit- illicit drug consumption as “abuse,” as society hased attention is given to methodological issues relat- decided to proscribe their consumption. The broadered to specific illicit drug use consequences or causal definition means the resources used in the consump-relationships. Particular effects are discussed only tion of illicit drugs are considered a social cost.when they are entirely omitted from substance abuse Another fundamental issue is the definition ofCOI studies. ‘social costs’. Private costs are normally excluded

The next section provides an overview of sub- from COI studies, as it is presumed the private costsstance abuse COI studies. Subsequent sections dis- of using a substance are accompanied by a privatecuss sets of issues germane to making these studies benefit at least as great. However, the Internationalmore useful for policy analysis. They are organised Guidelines identify three conditions that must bepragmatically: section 2 considers a set of issues that satisfied for substance abuse effects to be regardedcan easily be addressed within the current COI ap- as private – consumers being fully informed, ration-proach; section 3 discusses conceptual issues that al and required to bear the total costs of their con-arise from transferring an ‘illness’ approach to a sumption – and conclude that the stringency of these

2 For example, it is estimated that the Australian Government spent 1.3 billion Australian dollars in the 2002/3financial year[31] while the US Federal Government is expected to spend $US12.6 billion in the 2007 financial year.[32]


78 Moore & Caulkins

conditions justifies an approach of regarding all Some substance abuse COI studies include apotentially useful assessment of who bears the socialabuse costs as social costs.[17]

costs. For social costs in the US in 1992, it wasSocial costs may be direct, indirect or intangible.estimated that 46% of costs were borne by govern-

Direct costs are those resources used to deal with thement, 44% by abusers and members of their house-

substance abuse or its proximate effects, while indi-holds, 7% by victims of drug-attributable crime and

rect costs are secondary or flow-on effects from3% by those with private insurance.[1] In the most

drug use or its direct effects. Intangible costs are recent Australian study, it was estimated that 57% ofnon-market effects borne by individuals, such as tangible social costs were borne by business, 33%pain and suffering. In theory, COI studies try to by government and 10% by individuals.[12] Scepti-include indirect and intangible costs; in practice, cism has been expressed about such allocations,[4]

they omit many as too difficult to estimate. For and certainly some figures are counterintuitive; forexample, Collins and Lapsley[12] only estimate in- example, that business bears more than half of thetangible costs relating to deaths (due to drug-attribu- social costs of Australian drug abuse. Recent UStable health conditions, violent incidents and road updates[8,9] do not include such assessments.accidents) and pain and suffering associated with

Given the complexity of the effects associatedroad accidents, while US studies note but do notwith substance abuse, what social costs are ultimate-quantify any intangible costs.[7-9]

ly included? The International Guidelines[17] identi-COI authors have several options as to how these fy four major types of costs: (i) healthcare costs, (ii)

costs are measured. First, estimates can be preva- productivity costs, (iii) costs to law enforcement andlence based or incidence based. Prevalence-based the criminal justice system, and (iv) other costs,estimates measure the consequences of substance such as property destruction from alcohol or drugabuse in a given year, which is a function of past and attributable accidents or crime. To give a sense ofcurrent substance abuse. Incidence-based estimates their relative importance, US and Australian COImeasure the substance abuse that has occurred in a estimates for 1992 and 1999 are presented in theseyear and then estimate the current and future costs of categories in table I (to aid comparison, they arethat abuse. US and Australian drug abuse studies, presented as a percentage of their country’s GDP forand COI studies in general, adopt prevalence-based that year).approaches as data extrapolation is minimised and While the US figures remain a reasonably con-discount rates avoided. However, this is less helpful stant proportion of GDP over time (due in part tofor policy analysis, as nothing can be done about components of the latter estimate being the result ofpast abuse. projections from 1992), the estimated social costs

increase sharply in Australia. This is primarily dueSecondly, production losses as a consequence ofto the measurement of additional costs; indeed, Col-abuse-related deaths can also be treated two ways.lins and Lapsley[12] suggest nothing should be in-The human capital approach measures current andferred about the state of drug abuse from thesefuture production losses of deaths which occurred indifferences. That the social costs associated withthe present year, while the demographic approachillicit drug abuse can seemingly increase as a pro-measures the current costs from all current and pastportion of national income by 250% as a result ofabuse-related deaths (by comparing the current pop-measurement changes shows the extent to whichulation with a hypothetical population in which nomethodological decisions can influence the esti-drug abuse had occurred).[17] US studies adopt amates.human capital approach;[7-9] Australian studies use a

demographic approach.[10-12] The forward-looking In both years, the share of different costs acrossnature of the human capital approach makes it the the two countries is startlingly different. The USmost helpful for policy makers. estimate ascribes 71% of total drug-related social



Table I. Australian and US social costs of illicit drug abuse as a percentage of GDPa

Costs 1992 1999b

USA Australia USA Australia

% of GDP % of total % of GDP % of total % of GDP % of total % of GDP % of total

Healthcare 0.17 10 0.04 3 0.14 9 0.04 1

Productivity 1.24 72 0.49 32 1.18 71 1.05 27

Criminal justice 0.30 17 0.41 27 0.33 20 0.93 23

Other costs – tangible 0.01 1 0.20 13 0.01 1 1.30 33

Other costs – intangible 0 0 0.40 26 0 0 0.63 16

Total 1.73 100 1.55 100 1.66 100 3.94 100

a Data sources: US data are from the Office of National Drug Control Policy (ONDCP)[9] and the US Bureau of Economic Analysis;[33]

Australian data are from Collins and Lapsley[12] and the Australian Bureau of Statistics.[34]

b The Australian estimate is for the 1998/9 financial year.

cost to lost productivity compared with only 27% 2. Developing a Better Estimate of the‘Cost of Illness’for Australia. In addition, the criminal justice costs

in Australia are a larger percentage of GDP than in There are three substantial improvements thatthe US. Given that drug abuse in the US is associat- could be made to substance abuse COI studies with-

in the current framework: (i) developing estimatesed with a great deal of crime and violence, one mightthat reflect the best available information, ratherhave expected the opposite outcomes.than using lower bound estimates that represent a

Closer inspection of these studies sheds some ‘conservative’ figure; (ii) dealing with uncertaintylight on such curiosities. US studies, unlike Austra- explicitly by developing estimation ranges; andlian studies, include having drug offenders incarcer- (iii) disaggregating cost estimates, by reporting the

social costs generated by particular types of illicitated as a productivity cost, and value the lost wagesdrugs.at the national average wage for all US workers.

This is the major productivity-related cost; when 2.1 Developing ‘Best’ Rather Thancrime-related costs are aggregated they account for ‘Conservative’ Estimates60% of the total social cost.[9] However, the way

In common with other COI studies, Australianresults are presented and a lack of methodological and US studies adopt a ‘conservative’ approach todetail and consistency makes it hard for even a estimating social costs. This means:[12] “In general,committed reader to understand whether differences lower cost alternatives were always selected where

appropriate alternatives existed” (page ix). Wherebetween COI estimates are genuine or not.the available information is deemed inadequate, noAs we turn to various issues behind these num-cost is assigned to the effect. Reuter[27] refers to this

bers, it is worth noting that a health approach has as the “ignorance is zero” approach. For example,been applied to a ‘condition’ for which the health- Collins and Lapsley[12] identify but do not assigncare component accounts for just 9% of the total cost values to, inter alia, foregone productivity of

criminals, money laundering, the National Crimein the US and only 1% in the most recent AustralianAuthority (the main Australian body fighting or-estimate.[9,12] Inasmuch as productivity, crime andganised crime), private and home security, research,

other costs apparently dominate the cost of drugprevention programmes and private legal expenses.

abuse, one can appreciate the wisdom of revisiting Furthermore, under such ‘conservatism’ costs calcu-whether the conventional COI approach is the best lated in one estimate can disappear in the next whenfoundation for drug policy analysis. they are deemed to be too difficult to estimate. For


80 Moore & Caulkins

example, Australian drug-related research and edu- many ways of communicating a degree of uncertain-cation costs were estimated for 1992; however, by ty but the most familiar is to report a range as well as1998/9 Collins and Lapsley state that “the ability to a point estimate. This is often usefully comple-estimate these expenditures has declined”[12] (page mented by verbal warnings.3

36) and assign a figure of zero to them.[11,12]COI studies, on the whole, do badly in this re-

The notion that conservatism dictates choosing gard. The ONDCP[9] reports that the “economic costthe lowest possible figure at every turn may be of drug abuse in 2002 was estimated at $180.9appropriate for some accounting applications, but it billion” (page vi) [value in $US]. Leaving asideis a crude and naive approach to the development of whether it makes sense to report four digits of preci-public policy. For example, what are we to make of sion, nowhere in the introduction is there any effortthe observation that heart disease imposes about the to communicate quantitatively the magnitude of un-same costs on the US ($US183 billion in 1999) as certainty associated with this estimate (e.g. no rangedrug abuse ($US181 billion in 2002)?[9] The effects is given). There is only a general, non-quantitativeof drug abuse would be expected to be subject to far disclaimer that “the methods used in this study yieldgreater uncertainty than those of heart disease, and seemingly very precise values, however, theyso be under-estimated to a greater extent. Yet we should be treated as approximations” (page vi). Col-have no idea of, or bound on, the consequences of lins and Lapsley[12] do not mention the uncertaintythis conservatism. It is impossible to make compari- of their estimates until considering areas for futuresons across illnesses – purportedly COI studies’ research.raison d’etre – in the light of such ‘conservatism’. The sources of uncertainty in these estimates are

Selection of lower bound estimates introduces diverse. Certainly, there is sampling variability,biases when the width of uncertainty ranges varies which can be quantified in standard ways. However,across illnesses. COI estimates should be developed in all likelihood, the majority of the uncertaintyon the basis of the best available information and comes from other sources, including response andevidence, in order to develop individual components non-response errors from surveys and instances inand aggregate figures that reflect actual costs as which there simply are no data or when data must beaccurately as possible. extrapolated. Hence, Bayesian methods that allow

explicitly for the incorporation of subjective judge-2.2 An Alternative to Being ‘Conservative’: ments, multivariate sensitivity analyses (both deter-Explicitly Acknowledging Uncertainty ministic and through Monte Carlo simulation), and

other modern methods also have a role to play.[36]Quantification of almost any population-level

quantities associated with illicit drugs is subject to No more data and not much more effort is re-uncertainty. Use of illicit drugs is, by definition, quired to provide ‘low’ and ‘high’ estimates. Theillegal and is generally highly stigmatised; data on ranges will be uncomfortably large, but that is moredrug use and its consequences are hard to obtain. rather than less reason to provide them. One of theThere is nothing surprising or inherently problemat- purposes of COI studies identified in the Interna-ic about COI estimates being subject to significant tional Guidelines is to identify information gaps anduncertainties. However, it is irresponsible to esti- desirable refinements in national statistical reportingmate an uncertain quantity and not take reasonable systems.[17] Understanding that the plausible rangesteps to inform the reader about the amount of for a certain class of social costs is anywhere fromuncertainty associated with the estimate. There are $10 to $100 billion has more chance of leading to

3 For example, the Drug Availability Steering Committee[35] concluded that “US heroin consumption in 2001 wasbetween 13 and 18 metric tons of pure heroin” (page 47). In addition, they state prominently in the first paragraph of theexecutive summary that “There is significant uncertainty in these estimates due to … [various sources listed]. Therefore,caution is urged in the application of these estimates” (page xi).



improvements in reporting systems than does mere-ly listing gaps or refinements.

2.3 Disaggregating Cost Estimates byDrug Type

Currently, most COI studies do not break downthe social costs generated by the type of illicit drugsbeing used (e.g. heroin, cocaine) or by particulargroups of users (e.g. regular amphetamine users). Aconstructive step would be to disaggregate socialcosts by drug type, primarily using information cur-rently collected in the development of COI esti-mates.

An estimate of the social costs of heroin abuse inthe US demonstrates that it is possible to identifydrug-specific effects,[37] as does inspection of thehealth and crime costs contained in the broaderAustralian estimates. For example, Collins andLapsley[12] considered 25 conditions in their calcula-tion of health costs (shown in table II). A specificdrug causes 17 conditions, while ‘road injuries’ and‘suicide’ are apportioned to particular drug types inthe source epidemiological studies.[38,39] Four of theremaining conditions are a function of how fre-quently different types of drug are injected, forwhich there is Australian epidemiological informa-

Table II. Health conditions attributed to illicit drug abuse in Austra-lia, 1998/9[12]a

Drug-specific conditions

Opiate dependenceOpiate abuseAccidental opiate poisoningAntepartum haemorrhage due to opiatesLow birthweight due to opiatesCannabis dependenceCannabis abuseAmphetamine dependenceAmphetamine abuseCocaine dependenceCocaine abuseAccidental poison by psychostimulantsHallucinogen dependenceHallucinogen abuseAccidental poisoning by hallucinogensAntepartum haemorrhage due to cocaineLow birthweight due to cocaine

Conditions attributed to particular drugs

Road injuriesSuicide

Conditions related to injecting drug use

AIDSHepatitis non-A and non-BInfective endocarditisHepatitis B

Other conditions

Drug psychosesMaternal drug dependenceNewborn drug toxicity

a The health conditions were not categorised this way in sourcedocument.

tion.[40-42] ‘Drug psychoses’, ‘maternal drug depen-dence’ and ‘newborn drug toxicity’ are the only 3. Key Conceptual Issuesconditions where some basis for disaggregation re-mains to be found. Substance abuse has distinctive characteristics,

Likewise, for crime costs, Collins and Lapsley[12]many of which traditional COI approaches do not

use the Drug Use Monitoring in Australia survey, take into account. Any number of adaptations to thewhich, like the US-based Arrestee Drug Abuse COI framework might be called for; here we identi-Monitoring survey, contains interview and urine fy four issues crucial to the proper valuation of thedrug screen information on arrestees covering all the social costs of illicit drug abuse.common drugs (including marijuana, cocaine, hero-in/opiates, amphetamines and benzodiazepines).[43]

3.1 The Intangible Costs of DrugThis information can be used to allocate crimes to Dependence Itselfvarious drug types.

These examples show that policy-relevant infor- The first issue might variously be thought of asmation already exists but is being lost in reporting the cost of dependence or, more generally, as recog-only aggregate numbers. Disaggregating most costs nition that some people incur intangible costs stem-by drug type would require modest additional effort ming from drug dependence. Kleiman[44] argues thatby researchers already working with the primary dependence-inducing substances merit a special ex-datasets. ception to the usual presumption in liberal societies


82 Moore & Caulkins

that government interventions into consumption de- illicit drugs. There are various types of drug-relatedcisions cannot improve consumer welfare. Yet, we crimes. Goldstein[46] articulated the key distinctionsare not aware of any COI study that grapples with in his famous ‘tripartite framework’, which distin-the intangible costs of drug dependence. guishes between ‘psychopharmacological crime’

that stems from the effects of the drugs on the drugKleiman[28] uses a ‘back of the envelope’ calcula-user (e.g. through intoxication), ‘economic compul-tion to show that they may be sizeable. He notes thatsive crime’ committed by drug users to finance drugif 10% of the US adult population has, at any givenpurchases and ‘systemic crime’ related to drug mar-time, an alcohol- or drug-related substance disorderkets and drug distribution. Caulkins et al.[47] estimat-and such people and/or their families would beed that in the US, these three categories comprisewilling to pay an average $US10 000 to alleviateroughly one-sixth, one-third and one-half of all co-such a condition. Consequently, “the total willing-caine-related crime, respectively.ness-to-pay to avoid addiction itself, as distinct from

the financial losses it generates, would total $200 One key conceptual problem is the approachbillion per year in the United States, nearly as much taken to property crime. COI studies presume thatas the Harwood et al. estimate of $246 billion” (for theft per se has no social cost because it merelyalcohol and drugs combined) [page 640].4 transfers property from one citizen to another. Apart

from any loss in value in this transfer, society as aThe point can also be made from a slightly differ-whole is no worse off. For example, Collins andent perspective. Medical cost-effectiveness studiesLapsley[12] consider that 40% of the value of thethat focus on QALYs assign a quality level of 1.0 toproperty stolen was lost (the rest is transferred fromsomeone who is perfectly healthy and smaller num-the original owners to those who stole it). Thisbers to people with various conditions. Supposeapproach is at odds with how most voters would be10% of the US adult population has an alcohol- orlikely to regard crime and, hence, for public policydrug-related substance abuse disorder and their av-analysis in a democracy.erage QALY score is reduced by 0.1 because of that

condition (e.g. from 1.0 to 0.9),5 then roughly 2 This issue is of little importance when estimatingmillion QALYs (200 million adults × 10% preva- the social costs of cancer or stroke. However, it islence × 0.1 QALY) are lost per year as a result of absolutely central to thinking about the social costsdrug dependence. Alcohol and drug abuse lead to of abuse of the expensive illicit drugs (cocaine,about 125 000 premature deaths in the US each heroin and methamphetamine).year.[7] Even if those premature deaths lead, on

3.3 Black Markets and Systemic Crimeaverage, to a loss of as many as a present value of 32perfectly healthy life-years, then based on these There is another, potentially more significant,figures dependence in and of itself destroys at least undervaluation of crime costs: those related to sys-half as many QALYs as does premature mortality, temic and violent crime. Systemic crime is associat-which is one of the main drivers of COI estimates. In ed with drug markets and, in some countries, hastransferring this approach to addictive goods, social pervasive effects on the lives of people in entirecosts studies have omitted the costs of drug depen- neighbourhoods.[44] The International Guidelines[17]

dence itself, which are of first-order importance. mention this as a type of crime generated by drugabuse; however, it has not been costed in Australian3.2 Property Crimeand US studies, perhaps because it is only indirectly

Crime-related outcomes are of minor importance connected to the ‘patient’ in the medical metaphor.for diseases such as cancer or stroke but not so with Drug users (who are not also sellers) do not commit

4 The $US10 000 figure is over and above any ‘out-of-pocket’ expenses currently estimated within COI studies.5 By way of comparison, Zaric et al.[45] assume a QALY score of 0.8 for untreated injection drug use and 0.9 for timespent in methadone treatment.



much systemic crime or violence, most of which is issue with the valuation of property crime highlightsperpetrated by drug suppliers. Hence, no amount of the difficulty of ignoring transfers when they aredata collection concerning the behaviour of drug involuntary or associated with crime. Systemicusers would detect more than a small fraction of the crime highlights the limitation inherent in concen-systemic crime and violence, even though they are trating on costs generated by the actions of drugcosts that could be averted by some drug policies. users. Human capital formation is a stark example of

the importance of spillover effects; another exampleis drug dependence leading to parenting problems3.4 Skill Formation as a Spillover Effectthat, in turn, lead to adverse long-run life outcomes

While the magnitude of the direct effects of drug for the children.7 It is important that the authors ofabuse on unemployment is uncertain, the nature of COI studies pay attention to the characteristics of athe relationship is at least recognised within current particular condition, rather than simply followingCOI studies. However, drug use can have additional frameworks designed for other conditions.effects on the formation of human capital.

Consider a young adult who uses illicit drugs for 4. Conclusion1 year and, as a result, is entirely ‘unproductive’ that

Many aspects of the social costs of substanceyear in terms of earnings and human capital ac-abuse are neglected or mistreated within COI stud-cumulation. In terms of income or labour productiv-ies, and addressing all of them to produce scientific,ity, the effects within that year are not terriblyrigorous estimates is a daunting undertaking. How-important, as wage rates for young adults are rela-ever, at least when it comes to substance abuse, thetively low. However, the effects on human capitalneed for information on social costs and the dearthcan spill over into subsequent years. A year of poorof alternative sources makes it vital that the signifi-grades in high school or at university may blockcant deficiencies in the COI framework be ad-further educational opportunities and career choices,dressed. Fortunately, many important changes cansuch that the lifetime effects on wages and produc-be made relatively simply.tivity could be substantial. Longitudinal data sets

Take the current ‘conservative’ approach to esti-and analytical methods are improving the ability tomating social costs. Selecting the most accurateestimate spillover effects,[48,49] and considering themestimate and providing upper and lower bounds tois important for making a comprehensive assess-deal with uncertainty should not be conceptuallyment of substance abuse costs.contentious or especially laborious. Yet, thesechanges would substantially increase our under-3.5 Other Conceptual Issuesstanding of the estimates and, over time, motivatethe development of more accurate figures.These four conceptual issues can be seen as ar-

chetypes of problems with the COI framework. The Additional changes would also greatly improveintangible cost of drug dependence highlights the the usefulness of COI studies for policy analysis,limited characterisation of intangible costs.6 The especially adopting incidence and human capital

6 There are other examples. Cohen et al.[50] estimates the willingness to pay to avoid a burglary in the US at $US31 000in 2000 compared with direct costs of just $US1300 (in 1992 dollars).[51] COI crime estimates could be an order ofmagnitude smaller than the social cost of property crime that is relevant for policy analysis.7 Substance Abuse Mental Health Services Administration (SAMHSA)[52] estimates that >6 million children in the USlive with at least one parent who abused or was dependent on alcohol or an illicit drug during the past year. Miller et al.[53]

estimate the average social cost per instance of child abuse to be $US60 000 (in 1993 dollars). There probably is noempirical basis for estimating what proportion of substance abusing or dependent parents abuse their children because ofthat substance abuse or dependence, but the proportion would not have to be very large for child abuse to loom large insocial cost estimates. Even if the rate were only 10%, the cost would be $US36 billion (6 million × 10% × $US60 000)per year (1993 values; equivalent to $US49 billion per year in 2005 values).


84 Moore & Caulkins

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13. Single E, Robson L, Xie X, et al. The economic costs of alcohol,alternative to COI studies for monetising the bene-tobacco and illicit drugs in Canada, 1992. Addiction 1998; 93

fits of reductions in substance abuse, a crucial step (7): 991-100614. Fenoglio P, Parel V, Kopp P. The social cost of alcohol, tobaccoin the quantitative analyses of different drug policy

and illicit drugs in France, 1997. Eur Addict Res 2003; 9:strategies. Given the scale of the illicit drug prob- 18-28lem, even a small chance of improving the efficien- 15. Garcia-Altes A, Ma Olle J, Antonanzas F, et al. The social cost

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How Cost-of-Illness Studies Can be Made More Useful for Illicit Drug Policy Analysis

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