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close this bookAlcohol-related Problems as an Obstacle to the Development of Human Capital (WB)
View the documentAcknowledgements
View the documentForeword
View the documentAbstract
View the documentIntroduction
Open this folder and view contentsThe nature of alcohol-related problems
Open this folder and view contentsTrends in production and consumption
Open this folder and view contentsLevels and trends in alcohol-related mortality and morbidity
close this folderHow much do alcohol-related problems cost?
View the documentCosts associated with alcohol consumption
View the documentBenefits associated with alcohol consumption
Open this folder and view contentsRole of government and policy options
View the documentConclusion
View the documentBibliography
View the documentAppendix tables
View the documentDistributors of world bank publications

Costs associated with alcohol consumption

The consequences of alcohol abuse are significant, not only in terms of the adverse health effects and the health care costs, but also in terms of foregone earnings and decreased productivity. In order to justify policy changes, economists and public health specialists attempt to assess the social and economic (private) costs of alcohol related problems. The principal costs imposed by alcohol-related problems are generated by:

(1) Economic Cost of Foregone Earnings from Premature Mortality due to Alcohol Consumption. The cost of premature mortality (e.g. traffic accidents or cirrhosis) can be valued using the standard approach to estimate the economic cost of loss of life by assigning value to the output lost during the years that the deceased might otherwise have been living. Using the human capital method for valuing life and the standard procedures for calculating the present value of future earnings and household services the economic cost is then calculated.

(2) Direct Cost of Increased Morbidity. Excessive consumption of alcohol is a causal factor in the increased demand for medical services. This can be the result of increased risk from other risk factors or through a direct link between alcohol consumption and health status. Alcohol related costs secondary to the increase in medical costs created by rises in mortality and morbidity (often referred to as direct costs) include personal health care expenditures for the prevention, detection, treatment, and rehabilitation of alcohol related diseases (hospital costs, physician fees, medication costs, nursing home costs, dental services, and additional charges).

(3). Indirect Cost of Added Morbidity. Increased illness also contributes to a decline in the productivity of the economically active population. Moreover, alcohol has been shown to have a significant Impact on unemployment and Income (Mullahy, 1991).

Although it is difficult to estimate the real costs of alcohol related problems in practice, it is clear that the social and private costs are significant. The literature highlights six categories of alcohol related costs that should be considered in the net cost calculation. These categories are:


• Reduced productivity
• motor vehicular-related property damage and insurance
• incarceration
• fires
• fetal alcohol syndrome
• child abuse

Calculating the alcohol related costs associated with each of the above categories, a recent study on the social and economic costs of alcohol in Minnesota for 1983 found that the total cost of alcohol related problems in Minnesota was between $1.4 and $2.1 billion for 1983. This represented between 3.9 percent of medical care costs and 26 to 39 times the revenues generated by excise taxes on alcohol. U.S. costs associated with alcohol related mortality are estimated at $9.5 billion or 4.3 percent of 1980 US personal health care expenditures (Cruze A. et al, 1981), A study completed in 1979, estimated the social costs of such problems in the US at more than $113 billion (Shrifin, 1983). The distribution of costs for each of the above mentioned studies is shown in tables 3 and 4.

Table 3: The Cost of Alcohol Abuse in Minnesota, 1983


Value of Losses (US$)

Mortality Costs [indirect)


Medical Care Costs (direct)

195,000,000 - 363,000,000

Social Costs (direct and Indirect)


Reduced productivity


Long-term disability


Motor vehicle


Driving and liquor offenses




Fetal alcohol syndrome


Child Abuse


Total Cost (w/out employment and long- term disability cost)

679,000.000 - 847,000,000

Total (w/ employment and long-term disability cost)

1,361,000,000 to 2,113,000,000


Source: Parker, 1987.

In addition to the costs mentioned above, society to provide additional resources for welfare programs for alcohol abusers and their families; some of these programs are specifically designed to mitigate alcohol related problems and cover aspects such as detection, prevention, treatment, rehabilitation, research, and education. While it is extremely difficult to develop an exact estimate of the costs related to alcohol consumption, it is fairly clear that eliminating even a relatively small proportion of the costs associated with alcohol consumption would generate important savings.

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