Economics of Food Safety
PhD Abstract on the Economics of Food Safety
The PhD in Food Economics was completed at Newcastle University. The thesis was called The public's valuation of food safety - can it contribute to policy? An improved version of the abstract is below:
This thesis examines the 'economics of food safety'. The discussion outlines a model of food safety, based on the idea of supply and demand. Food safety is demanded by the public whereas it is supplied by the food industry. In theory, demand should equal supply.
This model is used as a basis for understanding the concept of 'market failure'. The market fails because food safety is under-supplied. Three specific market failures are identified. These are risk perception, information asymmetry and social costs and benefits. Risk perception is where the public’s awareness of risk is different to that of expert scientists. The public may want more safety than some scientists think is necessary. Information asymmetry is where food producers have more information about food safety risk, compared to consumers. This extra knowledge, which the industry holds, means that they can under-supply food safety without the customer knowing about it. Commercial kitchens, which are unclean and hidden from the public, provide an example of this concept. Social costs and benefits are where the activities of the food industry, affect people outside of the business. For example, where food poisoning caused by the food industry, affects the National Health Service. It is suggested that the government needs to intervene to correct these market failures. In other words, the supply of food safety needs to be increased. This is to make sure that the demand for food safety equals its supply. This leads into the main research undertaken as part of the thesis. The core issue is the extent to which government intervention is demanded by the public.
The government intervenes through the provision of public goods which, in this context, is the work undertaken through the Food Standards Agency. To estimate the demand for food safety activities, undertaken by the Agency, it is necessary to elicit the public's willingness to pay for food safety. The thesis uses a stated preference technique, to try and estimate the demand for the government’s food safety work. Stated preference, in this context, is where a member of the public is asked to state what level of additional food safety spending they would prefer. A zero option is included too. Such safety spending could be used for the employment of additional food inspectors or environmental health officers.
It is suggested that the technique is most appropriate for the valuation of common cases of food poisoning. It is less appropriate for wide-ranging and controversial topics such as Genetically Modified (GM) food. Methodological problems still arose with a restricted safety concept, covering only common cases of food poisoning. One of the main problems was ‘part-whole-bias’. This was where the relatively narrow scope of the question was overlooked. Respondents tended to generalise to include, in their valuation of the food safety issue, more serious forms of food safety hazard.
The research also suggests that public understanding of the food system is vital for the success of such a valuation exercise. However, such knowledge appears to be limited, given respondent's disconnection from farming, food manufacturing and to a lesser extent food retailing. The public's limited knowledge of the food system is a major constraint on the usefulness of economics in this area.
An Article To Suggest that Politics Needs to be Integrated with Economics
An economic valuation exercise could be used to find out if people were willing to pay, for a certain amount of extra defence spending. If a defence valuation exercise had been undertaken in the United Kingdom, on willingness to pay for the 2003 Gulf War, then there would have been the potential for a rational input into decision making. But, the government did not ask the public, if they were willing to pay for the 2003 Gulf War. The problem is that politics often operates in isolation from economics. Both disciplines have suffered as a result of this separation. Politicians, before the 2003 Gulf War, suffered due to the lack of economic consultation. The credibility of economics too has suffered from its isolation from politics. It is not credible for (health) economists to state that 'resources are scare' when monetary scarcity did not seem to apply to the 2003 Gulf War.
I suggest that policy-makers need to take a broader view which combines politics and economics. A study on health spending would also need to consider other areas of government expenditure.
I undertook some health economics post-doctoral research, in 2005, it was entitled Valuing health and safety for UK public policy: the Social Value of a QALY project'. For more information on this see the attachment below.
A Letter to a Newspaper Commenting on Alzheimer's Disease and Economics
The leader article in yesterday’s Journal (‘such a sad decision’) makes a relevant point. It is sad that a dementia patient is being denied an Alzheimer’s treatment but the situation is more complicated than stated. It should be recognised that economic resources are scarce and that decisions will have to be made about the allocation of limited funds. To use the cliché ‘hard choices’ have to be made, given that the National Health Service has a limited amount of money available to it. Money spent on an Alzheimer’s drug is money which cannot be spent on a cancer or heart drug. An economist may argue that a cancer or heart drug may offer better value for money for the taxpayer than a drug for Alzheimer’s.
The problem is that the economist’s concept of scarcity is not being applied broadly enough in public policy. The criterion of ‘cost effectiveness’ used by the National Institute for Clinical Excellence is thought to be appropriate in the health sector. However, if cost effectiveness is going to be used to make decisions in the health sector, then it should also be used to make decisions regarding say defence expenditure. The value to society of drugs (such as Alzheimer drugs) needs to be compared with the value to society of say the recent (2003) Gulf War. One way of doing this would be to compare the public’s willingness to pay (higher taxes) for health spending versus the public’s willingness to pay for defence spending. The amount of health and defence provision would have to be the same, so that an accurate comparison could be made of the public’s willingness to pay. However, the public does not seem to have been asked, about how much they would spend on defence.
The chief executive of the National Institute of Excellence (NICE) suggested that the (Alzheimer) drugs do not make enough of a difference for NICE to recommend them. However, this ignores the possibility that the public may want more money spent on drugs and less spent on defence. The problem is that NICE may be overstating the point that economic resources are scarce. Resources could be allocated from other areas (such as defence) to pay for drugs. This could lead to a higher level of satisfaction for society as a whole.
Until NICE acknowledges this possibility then it deserves to be challenged as it was in yesterday’s Journal. Its decision making is too narrow for public policy making.