1. Valuing psychological and behavioural effects of alcohol dependence : A contingent valuation study Claude Jeanrenaud 1,2, Sonia Pellegrini 1, Nicolas Marmagne 1 1 Institute for Economic and Regional Research (IRER), University of Neuchâtel, Switzerland 2 Center for Studies in Public Sector Economics, Bern, Fribourg and Neuchâtel, Switzerland. Choosing the right approach Applying the CV method to alcohol dependency runs into a number of challenges.  The health and social implications of alcohol abuse are numerous and complex; and the cognitive limitation of the respondents had to be taken into account when designing the questionnaire.  Several consequences of alcoholism, such as violence in the family, social isolation, disgrace to the family, etc. are not just facts but also highly emotive issues.  For practical and ethical reasons, the questionnaire cannot be administered to alcoholics. The usual way of dealing with this problem – the ex ante approach – is not practicable either. Individuals from among the general population are incapable of imagining that they might one day become an alcoholic. Internal validity The internal validity of the CV survey was checked using a multiple regression model. As predictor of the WTP, we used the traditional economic and socio- demographic variables, such as adjusted income, gender, age, social status, size of household and area of residence (urban v rural). A proxy for the marginal utility of income (MUI) has been introduced into the model. The standard hypothesis is that all individuals have the same income- utility function, thus variable income reflects both ability-to-pay and differences in the marginal utility of the money transfer. The coefficient of the variable MUI is significant and has the expected sign. Discussion The main aim of the paper was to assess in monetary terms the intangible costs of alcohol dependency. It is done by valuing the loss in quality-of-life for both the alcoholic and those closest to them. Contrary to the opinion often expressed by authors of works on cost-of-illness, it is possible to measure the intangible costs of illness in monetary terms: the contingent valuation method can be used to achieve this. The inclusion of variables that reflect a respondent’s attitudes significantly increases the model’s predictive capacity. Omitting intangible costs leads to a far-from-realistic picture of the social burden of alcohol dependency. The cost in terms of loss of quality-of-life (CHF1.7bn) exceeds the indirect costs of mortality and morbidity (CHF1.5bn). Aim of the study The aim of the paper is to assess the intangible costs of alcohol dependency. It is part of a broader study commissioned by the Swiss Federal Office of Public Health aimed at valuing the social cost of alcohol abuse in Switzerland. Until now there has been no attempt to value the health implications of alcohol dependency. The usual way of valuing the cost of drugs – licit or illicit – is the so-called “cost-of-illness” approach, which is based on the human capital method. The major shortcoming of this approach is that it only values any implications of alcohol which result, directly or indirectly, in loss of production. The psychological and behavioural implications of alcohol abuse are ignored. The second aim of the paper is to test the following hypothesis: the inclusion of new exploratory variables reflecting the attitudes and values of respondents will significantly improve the capacity of the regression model to predict willingness-to-pay (WTP). Alcohol dependency In Switzerland there are 300,000 people suffering from alcohol dependency - 5% of the population. The disease has both behavioural and physiological features. Physical dependency is measured by degree of tolerance – the need for increased amounts of the product to achieve drunkenness – and withdrawal symptoms. Psychological dependency focuses on the user’s need for the product in order to face the problems of everyday life and to feel well. Alcohol dependency leads to progressive loss of physical and mental capacities. The development of alcohol dependency may occur over 5-25 years of repeated, excessive consumption. Contact Institute for Economic and Regional Research (IRER) University of Neuchâtel Pierre-à-Mazel 7, 2000 Neuchâtel, Switzerland Tel. 0041 32 718 14 71 e-mail: sonia.pellegrini@unine.ch ; claude.jeanrenaud@unine.ch Cost categories The social cost of substance abuse can be divided into three parts. The first part corresponds to the resources that are used for medical treatment, repair of damage to property, court decisions and law enforcement, and thus diverted from other beneficial use. These are called direct costs. The second part corresponds to the loss of resources resulting from the rate of increased impairment of individuals with alcohol abuse – reduced participation in the labour force, increased absenteeism – and from alcohol-related premature death. These are called indirect costs. The third part of the social cost consists of the intangible costs – sometimes called human costs – which are due to loss of quality-of-life. These intangible costs are real in that they lead to a reduced well-being of the population, but they do not result in a diversion or a sacrifice of productive resources. If intangible costs are reduced, no additional resources become available to meet the needs of society. The paper focuses on the non- resource costs only. A direct approach The direct, or expressed preference, approach – contingent valuation (CV) method or conjoint analysis – seems to be the only feasible way to assess the human (or intangible) costs of alcohol because it would hardly be feasible to observe the pain and suffering of an alcoholic on a market substitute (the money-risk trade-off of a bartender requiring a higher wage because he is at risk of becoming an alcoholic). The CV method is flexible and can therefore be used to value the social cost of the disease - resource and non-resource costs - or only the loss in quality-of-life. We have used the latter, the so-called restricted approach. The CV method relies on a hypothetical market to elicit a person’s willingness-to-pay for a specific change in their health state. A scenario is proposed to respondents, who have to state how much they would be willing to pay to benefit from a better health state (ex post approach) or from a reduced risk of contracting the disease (ex ante approach). Scenario and elicitation question The interviewee, having previously been informed of the health, behavioural and psychosocial consequences of alcohol dependency, is first asked to imagine that a member of their household is an alcoholic. Then they are informed that a new, very effective treatment has been approved. To remain effective, the treatment must be administered for the rest of the patient’s life. The respondent is asked if they wish their relative to receive the treatment. To elicit their WTP, they then have to state the maximum (monthly) amount they would be prepared to pay to have their relative receive the treatment. Method: The Contingent Valuation survey Survey result 240 individuals aged 18+ from the general population in French-speaking Switzerland were interviewed in July 2002. Respondents were selected using the following criteria: gender, age and social stratum. Four respondents refused to opt for the treatment even if it were provided at no cost. Eight individuals wished their relative to receive the treatment, but there was no amount they were willing to pay for this. Follow-up questions have shown that the well-being of these 8 people would have improved, and therefore we considered these bids as “false zero bids”. The outliers – abnormally high bids – were dropped. The respondents were considered as victims of a hypothetical bias. Statistical analysis Mean WTP The mean WTP is of CHF486 per month or CHF5832 annually. The lowest monthly bid was CHF20, the highest bid CHF4000. On average, the burden of alcohol dependency, for both the alcoholic and the other members of the household, is close to CHF6000 per case. The prevalence of alcohol dependency in Switzerland is 300,000. The annual social burden to the country of the disease amounts to CHF1.7 billion. The variable CULTURE reveals the attitude of the respondent to the disease : 1 means that the disease is perceived as a fatality or a punishment, 0 means that the disease is viewed as a hardship to overcome. If the respondent considers that the quality of life of the other family member is greatly reduced (the variable QUALITY is 1). Finally, we expect the WTP to be lower if the relative whom the respondent has imagined being an alcoholic is not among the closest relatives (RELATIVE = 0).