WTP estimates of the societal costs of U.S. food-borne illness.

The U.S. federal government has a prominent role in regulating food safety. Estimates of the societal costs of food-borne illness are an important input for regulators setting risk-reduction priorities and designing programs. For example, the Economic Research Service's (ERS's) estimates of the cost of food-borne illness for selected pathogens were used in the U.S. Department of Agriculture's (USDA's) Benefit/Cost Analysis of the Food Safety and Inspection Service's (FSIS's) proposed Pathogen Reduction/Hazard Analysis and Critical Control Point regulations (1995, p. 6781). A key question is, how much food safety is society demanding? Estimation of the societal costs of missing food safety information and of information as a public good is critical for government priority setting and decision making about food safety (Unnevehr 2006). I highlight the exceedingly small probability of a company's product being linked to a human illness, underscoring the important role of the federal government in assuring food safety.

Next I examine advances in valuation methods and use Willingness to Pay (WTP) estimates for food-borne illnesses. WTP is endorsed in the literature as the valuation method most consistent with economic theory (Viscusi and Aldy 2003; Haninger and Hammitt 2007). Hammitt and Haninger (2007) have surveyed consumers on their WTP for a "safer" meal. This paper uses the Hammitt and Haninger estimates of WTP for safer food and FoodNet data on the age distribution for various severities of illness to provide preliminary estimates of the societal WTP for acute foodborne illnesses. Different values are used for children, adults, and the elderly in either the morbidity and/or mortality estimates. Because these cost estimates include all seventy-six million food-borne illnesses (Mead et al. 1999) and use different valuation techniques, the values are higher than previous estimates of the cost of food-borne illness by ERS and FDA based on only a handful of pathogens. (1)

Pathogen Information and Victim Compensation

The occasional settlement in court cases associated with a well-publicized outbreak sends the signal that food-borne illness victims are compensated. Because bacterial and viral pathogens cannot be seen by the consumer, a negative externality of a food-borne illness can occur without sufficient information to earn compensation. I examine the evidence on victim compensation and the limits imposed by information and transactions costs.

In 1990s, FoodNet was created to call U.S. laboratories and increase the recording of pathogen test results (figure 1). Mead et al. (1999) find that 0.04% of all estimated food-borne illnesses can be linked, via a test, to the specific pathogen causing the illness. (2) The remaining illnesses are identified by symptoms in the gastrointestinal tract, (3) as reported by physicians or the patients in two FoodNet surveys (figure 1).

[FIGURE 1 OMITTED]

The next information problem is linking the pathogen and the food, which is most likely to happen in a food-borne disease outbreak. Illnesses identified in an outbreak average 5,800 cases per year, or 0.008% of the total seventy-six million U.S. food-borne illnesses (Mead et al. 1999). Illnesses not part of an outbreak have higher information hurdles for identifying the causative pathogen, the food containing the pathogen, and the company producing the food.

Suing and winning compensation for a food-borne illness are even lower probability events with high transactions costs, such as time invested, cost of hiring a lawyer, and emotional costs of revisiting the illness. Buzby, Frenzen, and Rasco (2001) found that very few food-borne illnesses end up in court--on average eighteen jury trials per year or 0.000024% of all illnesses. Only 30% of the cases win in a jury trial. For the winners, the median award is $25,600 and increases to $55,000 if the pathogen can be identified. Other cases are settled out-of-court and require that the award be kept secret. This secrecy decreases the probability that other ill persons will take legal action against the company and suppresses news stories associating food-borne illness with the company and its products. The out-of-court settlement is partly an agreement to keep information from others who might be ill and able to build on this court case, partly savings on legal fees by all parties, and partly compensation for the illness. In sum, the probabilities of a positive pathogen test, of identifying the food contaminated with the pathogen, and of winning compensation are exceedingly small. (4)

Historically, pathogen information first became a problem with the export of U.S. hog bellies to Europe. In the 1860s, some European countries began using the trichinae scope to detect the parasite, Trichinella. When countries found the parasite in U.S. hog bellies, they closed their markets in the 1870s and 1880s. United States companies exporting to Europe lobbied the federal government for meat inspection in order to regain access to overseas markets. In 1890, voluntary federal inspection became available for exporting companies. In 1891, U.S. companies could request inspection for the domestic market. In 1906, federal inspection was mandated for beef and pork transported across state lines. In 1957, poultry was added. These examples illustrate the increased federal involvement in regulating and assuring food safety.

In 1996, a new system, called the Pathogen Reduction/Hazard Analysis Critical Control Point system, was implemented. Federal inspection of final products by the FSIS was replaced by federal inspection of meat and poultry companies' systems to control food-borne hazards. The most serious hazards are bacteria, viruses, parasites, and prions that may enter the food supply chain from the farm to the kitchen. Federal intervention leads to the question, how costly is the current level of U.S. food-borne illness? The next section develops estimates of the societal cost of human food-borne illness using results from consumer surveys to estimate WTP for safer food.

Societal Costs of Acute Food-Borne Illness

The ERS funded two consumer surveys to update valuation methods for morbidity and mortality risks attributed to food-borne pathogens. The first two papers in this session report the WTP findings from these consumer surveys. Hammitt and Haninger (2007) conduct a stated-preference survey of WTP to reduce risk of food-borne illness. I use their values for children and adults for morbidity valuation in four categories: hospitalized cases, those who see a physician and test positive for a pathogen, those who see a physician but do not have a test taken, and those who do not seek medical care (table 1).

FoodNet uses four survey instruments to collect data on age for three severities of illness: persons who visited a physician and had a positive test for a pathogen, patients who were hospitalized, and patients who died (figure 1). In table 2, the distribution of cases by disease severity is shown for three age groups: children (0-14), adults (15-69), and the elderly (70+). I chose these age groups because the economic literature has shown valuation varies with age (Viscusi and Aldy 2003; Blomquist 2004).

Mortality risk valuation has a long history examining risk premiums in labor markets, while valuation of mortality risk is more recent in the environmental literature. Typically, researchers compare small differences in mortality risk in different occupations or in different industries with the accompanying differences in wages, after adjustment for skill level and other factors. The mortality risk and associated risk premium in wages are used to estimate the Value of a Statistical Life (VSL). Blomquist's review of studies finds that VSLs are generally greater for children than adults, while VSLs for those over seventy years of age are about 30% lower than other adults (2004). Viscusi and Aldy's review of the labor market literature finds estimates of $4 million to $9 million per VSL (2003).

Food-Borne Illnesses by Severity

Mead et al. (1999) estimate that there are seventy-six million U.S. food-borne illnesses each year, that 325,000 result in hospitalization, and that 5,200 result in death from the acute illness. Subtracting the hospitalizations and deaths leaves 75,669,800 remaining milder cases. These cases can be parsed into subgroups of differing severity. Mead et al.'s estimates were based on cases that tested positive for a pathogen. Scallan et al. (2006) find that physicians only ask for pathogen tests if the patient has bloody diarrhea or is quite ill. Salmonellosis is the most studied food-borne pathogen, and for each case with positive test there are thirty-eight milder cases with either no test or a negative test. Using salmonellosis as a guide, I estimate the number of patients who test positive for a pathogen at 1,991,311 (75,669,800/58).

Scallan et al. (2006) estimate that 80% of all FoodNet cases do not visit a physician. This means that of the seventy-six million cases, 60,800,000 never seek medical care, primarily because they have a mild case of illness. The remainder of the cases are persons who do see a physician, but the physician does not request a pathogen test or the test is negative, or 12,878,489 cases.

In summary, the estimated annual seventy-six million cases of food-borne illness are now separated into five mutually exclusive severity categories:

--5,200 deaths

--325,000 cases that average 5.8 days in the hospital (Voetsch et al. 2004)

--1,991,311 cases who are ill enough to see a physician and test positive for a specific pathogen