Picking the high variance play

Yeah, I know that Bill Easterly has thrown a big monkey wrench (data quality) into the notion that dictatorships produce high variance outcomes relative to democracies. But it's not implausible that a good choice of dictator could yield better than average outcomes. And far worse outcomes too.

No Right Turn lists some of the features of the legislation [draft as at first reading linked] under which Christchurch folk will be living for the next few... months? years?

CERA has the power to demand any information about anything from anyone. No warrant, no oversight, no safeguards. This is more power than the Serious Fraud Office, and with fewer checks and balances.

CERA, which means the Minister, also has wide powers to "assist" the rebuilding of Christchurch. They can:

• Overturn any planning decision;
• revoke or amend any resource consent;
• force councils to allow any resource consent;
• compulsarily acquire property without any public interest test;
• demolish your house even if it is undamaged;
• dissolve elected local bodies if they fail to do what Brownlee says.

And all of this without any effective rights of appeal and with only limited rights of compensation.

And to cap it all off, there's the same dictatorial power to amend laws by regulation originally seen in CERRA v1.0.

Dean Knight provides a few detailed objections.

Let's leave aside for now my usual weeping about the decline in rule of law and the lack of a constitutional spirit among voters that would restrain such things. Instead, let's look at the legislation as a high variance play.

A best case use of these powers could be really beneficial for Christchurch. If Ikea wanted to set up in Christchurch, they could probably start construction the day after buying some property out near the airport. We'd effectively be a special economic zone within New Zealand where competitors couldn't stop things through RMA objections. There will be at least some developments of this sort that come of the lifting of the regulatory lid; fast-tracking some of these kinds of projects through what would otherwise have been a multi-year regulatory approval process seems very beneficial.

But a plausible worst case use of the powers isn't particularly nice. I'm most worried about the potential for expropriation: consolidating some land titles downtown for urban renewal will be awfully tempting. I have a hard time imagining the worst case would be much worse than this; the government does face a re-election constraint. But I also would have had a hard time imagining a lot of what's already happened.

The case for expropriation is pretty weak. In normal times, government turns to expropriation with compensation as a solution to hold-out problems. In the US, this has often been used to steal people's homes and turn them over to developers (Go to Google, type Kelo v. City of New London); I've heard of nothing comparable here.

But imagine that government deemed it critical to reconstruction that some new private facility gets built downtown. If there were only one possible location for the facility, and if all the current owners knew that, each would try to extract maximally when setting selling prices; government might then try compulsory acquisition at post-quake prices, and hopefully they'd settle on something reasonable. But the earthquake has flattened enough of downtown that there ought to be multiple potential locations for any facility the government might want. Dominant assurance contracts should then have a good chance of working.

Here's a scenario. Suppose that sites A, B, and C are potential decent spots for some new project. Titles are spread over a dozen owners in each place. The developer approaches each of the three dozen owners and offers the following deal:

I'm looking to build and I'm eyeing up a few different sites. But I need a big enough space that I need to buy from a few folks to make things work. Here's the deal. I'll pay you $(some non-trivial amount) right now for an option to buy your property at the land assessment value from 2007. You get the cash in hand whether I exercise the option or not. If everybody else in the block of land where your property is signs on, I might exercise the option. Or I might go with one of the other sections if everybody signs on there. Point being - you get cash in hand right now if you sign on, and a great price for your land if I exercise the option. Can I get you a pen?

Holdout problem solved, and with it any need for expropriation is gone. I really hope that the government encourages this kind of thinking, or at least uses some of the properties Council already purchased over the last few years, before looking at compulsory acquisition.