Water water everywhere

And oh the trolls did shriek.

Over at the Christchurch Press, I went through the current controversies about an Ashburton water bottling plant. New Zealand allocates water drawing rights through a consenting system. Government allocates drawing rights for water, but those rights aren't really tradeable other than by selling the land that goes with the consent.

All over the Canterbury plains, farmers have drawing rights for water for irrigation. New ones don't draw that much ire, but there are growing worries about nitrates leaching into groundwater and about streams drying up in Christchurch. If another typical-sized dairy operation opened up, though, there wouldn't be much hoo-hah.

But open up a water bottling plant to ship water directly to China instead of running it first through a cow to turn into milk to dry and turn into powder and waste water, well, folks get upset.

Me:

The plants draw water from the aquifer, put it in bottles, and sell it in Asia. Because New Zealand awards consents to draw water but nobody puts a price on water, critics see this as profiteering on an unpriced resource.

​At the same time, over a thousand Canterbury dairy farms put water into cows. Dr Daniel Collins estimated that it takes about 250 litres of river and aquifer water, through irrigation, to produce a litre of Canterbury milk. That will not be a net measure, as some of the irrigation does flow back into the aquifer.

But it will take many more litres of water to produce a litre of milk than it takes to produce a litre of bottled water. The milk is collected, the water extracted, and the powder is sold in China.

And so we come to what might be the Canterbury Trabant plant. Does anyone really know whether water from Canterbury's aquifers is more valuable when put directly into bottles and sold to Asia, or when it routes through a cow along the way?

How low does the price of milk have to be before it would make more sense to leave out the middle-cow?

It is a tough question to answer, and especially where water allocation is set by consent rather than through markets. East Germany allocated iron by something not that different from consents, rationing scarce resources across various industrial uses, and wound up making cars that were worth less than the inputs that went into them.

New Zealand allocates scarce water by consents, and hopefully does a better job of it. Trabants were ghastly; New Zealand milk is delicious.

I argued for a water trading scheme. Fritz Raffensperger designed one when he was at Canterbury, when Canterbury had an operations research team.

Main point of the article: why are y'all getting so upset about water being put in bottles and shipped to China when it takes (ballpark) 250 times as much water to make a litre of milk, which is then dried out and shipped to China? They're both selling water.

Main critique of the comments section: Selling water is wrong.

I'm constantly amazed that policy isn't worse than it is.

Against hypothecation

One of the big reasons I don't like hypothecated taxes - taxes that are tied to particular projects - is that they lead to nonsense like this:

Would you support a soda tax? What if it was used to support universal pre-k? https://t.co/l36a7O9yVD pic.twitter.com/OhNvw3FKyE

— The Upshot (@UpshotNYT) April 4, 2016

Hey, everybody can play this game.

Would you support a tax on frappucinos if it supported orphans with cancer?

How about a tax on hipster beard oil if it supported recovery programmes for the New Zealand saddleback?

How about a daft tax on capital ownership at a high deemed assumed rate of return to support a basic income sufficiently low that there'd be massive political pressure to layer a welfare system on top of it?

Basic formula: find a product some groups would see as a bit of a frivolous luxury or as 'unnecessary' (and especially if those consuming the product can earn disapprobation from its consumption), bundle it with spending on some nice sounding thing that nobody could oppose, and tah-dah! You've ruined tax policy.

Here's a basic lesson in public finance. Set your bundle of taxes so that it raises money at lowest possible economic cost. Some taxes are actually efficiency increasing: true Pigovean taxes. Use those first. Once those are set at the right level, work your way up through other taxes until the marginal social cost of raising an additional dollar in taxes, including the deadweight costs of raising the money, matches the marginal social benefit of the next unit of public expenditure. Then stop.

If some tax you think is a good idea really is a good idea, work it into the tax base first. If the marginal social cost of raising tax revenue is then lower, you can either reduce total taxes by cutting back on the least efficient ones, or add in a bit more public expenditure on the next thing down the cost-benefit list, or a bit of both.

Think of it this way: if the tax made sense, why would it make sense only when bundled with some politically attractive spending programme?

There are a few exceptions. Road user charging through petrol charging is far more a fee for service than it is a hypothecated bundle. And some proposals levy taxes to directly tax the winners from a programme to compensate the losers: like my proposal for Canadian dairy.

But if somebody's selling you a tax-and-programme bundle, they're usually pulling a fast one. Look first, and carefully, to see if there's really good reason that the two things should be bundled together. If not, well, draw your conclusions.

The UBI and the political constraint

I walk through the basics on universal basic incomes over at The Spinoff. After explaining Milligan's impossible trinity, I note the political constraint that I think blocks Gareth Morgan's proposed UBI. Morgan's proposed UBI would leave some very poor families worse off:

More importantly, though, while relatively low basic benefits could make the system affordable, they would not be politically stable. There would be pressure to layer a benefits system on top of the UBI, or to increase the UBI. It does not seem plausible that any government would be able to withstand the likely months’ long John Campbell campaign that would, every day, highlight a different family whose benefits were cut under the shift to a UBI. We would quickly have a welfare system layered on top of a UBI, increasing the costs while eroding the UBI’s benefits.

I could imagine pushing a button for a low UBI replacing existing income support programmes, combined with generous tax credits for contributions to charities that work to plug remaining gaps. But that button doesn't exist, and even if it did, it wouldn't be politically stable. You would have, every night, John Campbell featuring some family that has been made worse off. Because that is what John Campbell does, and because there is a market for those stories. Even if charitable support programmes were ramping up and would be more effective in the long run, the political constraint would bind. And then we wind up with UBI plus existing welfare.

Over at The Sandpit, I note a few additional problems that John Gibson raises:

[Gibson] then goes through five rather important potential unintended consequences of income transfer schemes, mostly looking at things in developing countries:

1. Transfers targeted to types of need encourage Tullock-style competing for aid. He notes a programme in Brazil targeting poor families with kids wound up resulting in less weight gain per month for the targeted kids; the families feared that if their kids grew well, the transfers would stop.
2. If being in formal work means you pay taxes to support protection schemes targeting those outside of formal work, then you get distortions towards informal work;
3. Transfers to targeted rural households generate localised inflation that hurts non-targeted households;
4. Programmes can erode existing informal safety nets where people rely on each other and family during tough times. The effect of programmes is then a bit harder to judge where the effective beneficiary is the person who would otherwise be supporting the recipient of aid.
5. Programmes likely affect household composition, and consequently undermine targeting. He gives the example of the expansion of old age pensions in South Africa: adults with low skills wound up moving in with pensioners.

Learning from Canada: Refugee edition

Most of the time, I'm lauding how New Zealand gets things right that Canada messes up. The GST, no agricultural subsidies, low tariffs, parallel importation, open internal labour markets and lack of trade barriers between Otago and Wellington - NZ has a lot going for it.

But Canada has something important to teach us on refugees. And so I'm very happy that The Initiative will be hosting Dean Barry, Counsellor on Immigration with the High Commission of Canada in Canberra. He'll be with us next Tuesday evening to explain how Canada has been able to respond quickly to accommodate many more Syrian refugees than New Zealand has dreamed possible. 

Canada's population is about 7.5 times New Zealand's. Since November 2015, Canada has welcomed 8,981 refugees through its private sponsorship channel alone. If we put that into New Zealand terms, by population, that would be about 1,200 - almost double what New Zealand will accept over the next two and a half years. And that's in addition to the 15,000 refugees who have arrived through the sponsorship of the Canadian government. 

The event invitation is copied below; please do RSVP as spaces are limited. 

Canadian and New Zealand responses to last October’s refugee crisis could not have been more different.

Kiwis who wanted to help Syrian refugees did admirable work in preparing for those refugees that New Zealand did accept. But they also had to expend a lot of effort to convince the government to allow more refugees to come. Even when community groups had homes ready to welcome refugees, they needed to convince the government to open the door to let them in.

While Kiwis wanting New Zealand to accept more refugees lobbied the government to increase the refugee quota, Canadian groups could simply raise funds to bring more refugees to Canada. And every time that Canadian groups proved they were able to support another refugee, the Canadian government opened the door. As of 8 March 2016, that door has opened 8,960 times.

The New Zealand Initiative is very proud to host Dean Barry, Immigration Counsellor with the Canadian High Commission in Canberra. Barry will explain how the Canadian refugee sponsorship regime works, how refugees benefit from private sponsorship, and what lessons Canada has learned.

The Initiative believes in practical, evidence-based solutions to public policy problems. And the Canadians here just might be on to something. We hope you will join us.

About the speaker
Dean Barry has worked with the Government of Canada for 14 years, with positions at Industry Canada, Public Safety, the Canada Border Services Agency and Citizenship and Immigration Canada. He is currently posted to Canberra, Australia as Counsellor – Immigration at the High Commission of Canada. In this assignment, he is responsible for a wide range of reporting and liaison activities that cover a broad range of policy and operational areas, from managed migration to systems modernization to passport policy. He is accredited to the Commonwealth of Australia, New Zealand, Republic of the Fiji Islands, the Kingdom of Tonga, the Republic of Vanuatu and Samoa.   

IPUMS envy

A couple weeks back, I couldn't get NZ Census data going back earlier than the 1996 Census.

I'd then asked one of The Initiative's researchers, who's better on Stats NZ data than I am, to see whether he could find data going farther back. He couldn't. Stats replied that age breakdowns of income data, like the stuff I was doing in the post linked above, would only be available in hard copy publications from past censuses, or as a customised data job.

Meanwhile, IPUMS sends out the following email to its users:

Dear IPUMS user,

We are excited to announce new data available from IPUMS-USA:

• Multi-year ACS samples from 2013 and 2014.

• A new 5% public use microdata file for 1960. This collaboration with the U.S. Census Bureau provides an improvement upon the previous 1% file for 1960. The new data contains more detailed geographic information. You can read more about the 1960 project on our website.

• Harmonized 100% full count dataset for 1850.

We will be exhibiting at the Population Association of America (PAA) 2016 Annual Meeting in Washington D.C. next week. Visit booth 512 to talk data with us.

You can download a 5% Public Use Microsample of the 1960 US Census via the IPUMS website.

In New Zealand, there's a Confidentialised Unit Record File for the 2013 Census, but nothing for prior censues currently listed. And getting access to a CURF is a bit trickier than getting access to the US PUMS.

Disqus issues

I apologise for some ongoing technical issues with Disqus.

A while back, Disqus stopped playing nice with the mobile version of Offsetting. Those comments have been going into the standard Blogger comments rather than into Disqus, and so aren't seen on the desktop version of the site - and vice-versa.

Over the past few days, Disqus seems to have been knocking out comments entirely. Some, I can see in the admin back end at Disqus, but I cannot get them onto the main page. Others seem to have disappeared entirely.

I hope you'll bear with me as I try to figure out how to fix this.

Update: I'm trying this patch, which forces Blogger to use the .com version of the page rather than setting country redirects. Seems I'm not the only one with this problem.

Risky diagnoses

When you're cautious in taking sexual risks, you help both yourself and your partners. The former effect can be purely selfish optimisation. The latter could be due to other-regarding preferences in relationships where you care about the other person, or just a positive externality.

Why does this matter? Consider what happens if more HIV testing is funded. If you're behind the veil and don't know about your status or your partner's, prudence dictates some caution. If you're tested, you know your status but don't necessarily know your partner's. If you're tested and wind up being negative, then the returns to prudence are higher, as you know with certainty that you aren't already infected so you can make things worse, but you might also think that the risks you've taken so far are safer than you'd thought. And how much weight people put on the risk they impose on partners is hard to tell: if you find out you're positive, you either reduce caution if partners' utility doesn't weigh heavily, or increase caution if others' utility counts.

And so what people do on getting a test result is an empirical question.

Enter Erick Gong. He finds that ..., well, scratch that. I'll just quote from his introduction as it's rare to see this kind of clarity in academic writing. Bottom line: if you're going to fund free testing, couple it with funding for anti-retro virals so that when people find out they're positive, they do less harm to others.

I use data from the Voluntary Counselling and Testing (VCT) Efficacy study conducted in Kenya and Tanzania, which randomly assigned people into HIV testing and followed up with them six months later (The Voluntary HIV-1 Counselling and Testing Efficacy Study Group,2000). I construct a measure of people's beliefs about their HIV status before getting tested using questions on the baseline survey. To measure risky sexual behaviour, I use biological markers that are not susceptible to self-reporting bias. Data are collected on newly contracted infections of gonorrhoea and chlamydia (henceforward known as ‘sexually transmitted infection’ or ‘STI’) that occur during the study.5 An STI only results from unprotected sex with someone who has an STI and serves as an objective measure of risky sexual behaviour. The random assignment of testing enables me to identify the effect that HIV tests have on sexual behaviour conditioned on prior beliefs of HIV infection.

My findings suggest that HIV tests have the largest effects on risky sexual behaviour when test results provide unexpected information to an individual. I find that people surprised by an HIV-positive test (i.e. those who believed they were at low risk for HIV before testing and learn they are HIV-positive) have a 10.5 percentage point increase in their likelihood of contracting an STI compared to an HIV-positive control group who had similar beliefs of HIV risk but were untested at baseline.6 I interpret this increase in contracting an STI as an indication that those surprised by an HIV-positive test increased their risky sexual behaviour – an unintended consequence of testing. I estimate that these types on average increased their number of new partners by about 2.4 over a six-month time frame. People surprised by an HIV-negative test (i.e. those who believed they were at high risk for HIV before testing and learn they are HIV-negative) have a 5 percentage point decrease in the likelihood of contracting an STI compared to an HIV-negative control group with similar beliefs of HIV risk but were untested at baseline.7 This decrease in the likelihood of contracting an STI suggests that those surprised by HIV-negative tests decrease their risky sexual behaviour. Both of these results indicate that when people make decisions about risky sexual behaviour, self-interests dominate altruistic preferences. People who discover they are HIV-positive no longer have any incentive to practice safe sex (i.e. ‘nothing to lose’), while those who learn they are HIV-negative face greater incentives to avoid risky behaviour. Finally, when HIV test results agree with a person's beliefs of HIV status, the effects of testing on STI likelihood are not statistically different from zero. This is consistent with an economic model where the behavioural responses to HIV tests are greatest when they provide unexpected information.

I use the empirical results described above and combine them with a simple epidemiological model to simulate the short-run effect of rolling out HIV testing in an urban setting. While this exercise inherently requires a set of strong assumptions, and hence the results should be interpreted with caution, it does address an important policy question. I use the distribution of beliefs of HIV risk and actual HIV status from the Demographic Health Surveys in Kenya, Mozambique and Zambia – all three countries faced with a generalised HIV epidemic. I find that in the cases of Kenya and Zambia, testing leads to declines in new infections, while testing leads to an increase in infections in Mozambique. However, when ARVs are provided at an earlier stage in the infection, testing leads to large reductions in HIV infections in all three countries. Since ARVs greatly reduce the infectivity of HIV-positive individuals, the aggressive provision of ARVs can mitigate the risks posed by HIV-positive individuals who increase their risky sexual behaviour after testing.8

The other particularly interesting bit: surprise negatives yield reductions in risk-taking.

I'd missed this when it came out in 2015. I thank Ole Rogeberg for the pointer.