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In a few instances, individuals die as a result of foodborne illness. More generally they experience four main costs due to the illness:

• loss of workplace productivity (also borne by employers)
• loss of household productivity and disruption to household activities
• the cost of employing carers
• lifestyle disruption, for example pain and suffering, that is not included in the above.

The valuation procedures for premature mortality and the costs of illness are described below. More detail is given in Chapter 6.

Loss of life

Appendix A shows the estimated age ranges at which people died from foodborne illness, for most of the illnesses in this study. For hepatitis A and irritable bowel syndrome the estimates of early death are not age-specific.

When the data are not age-specific, the study adopts a value of life lost of $2.5 million. This figure is based on Abelson (2003b), which provides a comprehensive survey of methods and results for valuing life. Traditionally Australian authorities put a value on life of about $1.0 million (for example NSW Roads and Traffic Authority 2004). This figure is based on a human capital valuation in that it represents the present value of future earnings foregone.

However, as shown in Abelson (2003b), this approach is not consistent with economic valuation (willingness-to-pay or WTP) principles. The value of something, including life and health, is what individuals are willing to pay for it. In the case of life, the value of a life is derived from what individuals are willing to pay to reduce the risk of death. If people are willing to pay $2,000 on average to reduce the risk of death by 1 in 1,000, the value of one life is $2.0 million (that is, $2,000 x 1,000). Drawing on WTP studies, most estimates of WTP values for life fall in the range of $2.5 million to $7.0 million.

When there are data on deaths by age group, we estimate the present annual value of the number of years lost. To do this, we need estimates of the value of life over a year, the number of years lost and a discount rate.

To obtain an annual value of life, we convert the life value of $2.5 million to an annual figure. Assuming that 40 years of life are foregone and that an individual’s real rate of time discount is 3%2, a capital value of $2.5 million equates to the $108,000 per annum used in this report.3 The average numbers of years lost for each type of foodborne illness is estimated using life tables. We adopt a 3% discount rate in this case because individual time preference rates are generally lower than the opportunity cost of capital due to the tax wedge (see Chapter 7, Abelson 2003a).

Loss of workplace productivity

The loss of workplace productivity is the product of the amount of work time lost and the unit value of work time. Appendix A provides estimates of the amount of work time lost for each illness. Time off work is valued at $175 per day based on average daily earnings. Note that this cost may be borne by the employer or the employee (depending on the nature of the employment or contract) or by a self-employed person. Chapter 6 describes our assumptions about the bearing of these costs.

Loss or disruption to household activity

Loss of household activity is the product of the amount of time lost or disrupted by people experiencing foodborne illness or people caring for those with foodborne illness, in activities other than paid work, and the unit value of household time. For gastroenteritis, Appendix A provides estimates of the amount of household activity time lost for each illness. We estimate the cost of the days lost or disrupted at 50% of average daily earnings (that is, at $87.50 per day).

As noted in Appendix A, the concept of household activity lost or disrupted is not a precise one and this is a potential source of error in estimating costs. Similarly, our assumption that such a day lost or disrupted has a cost of $87.50 reflects a judgment rather than a survey-based estimate. However, because of the valuation methodology we adopt in this report and describe below, possible errors in the estimates of lost or disrupted time and in the value per day assumption have a small effect on the estimated total cost of foodborne illness.

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Costs of carers

The cost of carers is the product of the amount of time required for carers and the unit cost of carer time. However, the figures in Appendix A do not distinguish between carer and other time. Both work time lost and household time disrupted include carer time. Accordingly, when carer time is included in work time, it is valued at $175 per day. When included in household time, it is valued at $87.50 per day.

Lifestyle pain and suffering

Lifestyle pain and suffering is an all-inclusive set of costs borne by individuals, other than those costs included in loss of workplace productivity, loss of household productivity and disrupted household activities, and costs of carers.

We estimate this residual lifestyle cost by (i) estimating the amount that individuals are willing to pay to avoid an illness, and (ii) by subtracting household-borne costs that have already been estimated. Thus:

LFC = WTP - (WPC + HDC) (Equation 2.1)

where

LFC = lifestyle (residual) costs
WTP = total willingness to pay to avoid the illness
WPC = workplace costs (including carer costs) borne by the individual, not by the employer or business
HDC = household productivity and disruption costs.

Clearly, the estimate of LFC depends crucially on estimates of willingness to pay to avoid illness. This is estimated as follows:

WTP_i = SW_i x D_i x VDH (Equation 2.2)

where

SW = the severity weight
D = days with illness
VDH = the value of a day of good health
subscript i denotes the type of illness.

The severity weight is a measure of the loss of quality of life. To represent this weight we use disability adjusted life year (DALY) weights. DALY weights are the disutility for a year not lived in perfect health. They are obverses of quality of life (QoL) indices, which identify the utility value of particular health states: QoL = (1 – DALY). For example, a severity weight for a case of food poisoning of medium severity that requires a visit to a GP is 0.094 (based on the relevant DALY in AIHW: Mathers et al. 1999). This indicates that an individual is losing 9.06% of the value of full health for a given period (in this case a number of days).

The value of a day of good health is valued in this study as the value of a year in good health divided by 365 days ($108,000/365 days = $296).

Assuming that a case of food poisoning of medium severity lasts for four days, an individual would be willing to pay $111 to avoid this illness (0.094 x 4 x $296 = $111).

Now it may be noted that the total costs (TC) borne by individuals are:

TC = WPC + HDC + LFC (Equation 2.3)

where the terms are as before, and WPC includes loss of carer time.

If we substitute in Equation 2.1 we obtain:

TC = WPC + HDC + WTP – WPC – HDC = WTP. (Equation 2.4)

In effect, the total cost of illness borne by individuals equals what individuals are willing to pay to avoid the illness.

This being the case, it might be asked: is it necessary to estimate the value of lost workplace and household activity? Why not simply estimate the total WTP figure?

The answer is that the dual approach, estimating both total cost and the main components, provides an important validation process.

In some cases household disruption costs are so high that there is no residual lifestyle cost. Most likely this means that household disruption costs have been overestimated, and the pain and suffering component of the costs has been underestimated. However, this dual process helps to validate the overall cost of illness, which is the figure of most interest.

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