Road hog (or at least pork)

Were I teaching my undergrad Public Choice class again in two weeks instead of heading off to Wellington to join up with the NZ Initiative, this would have been Assignment 3. It couldn't have been the first assignment, because that comes after they've gotten basic constitutional political economy and social choice, but before they've gotten the basics of their own electoral system and the mechanics of pork barrel politics. It couldn't have been in Assignment 2, as the kids then wouldn't have yet gotten the economics of bureaucracy. It could have been Assignment 3, or on the take-home exam.

In theory as developed and discussed in lectures and in your readings, we found that First-Past-the-Post systems tend towards geographic-based pork-barrel policies while PR and MMP systems tend instead to demographic-based pork.  

During this year's election campaign, National announced a substantial set of roading projects to be funded outside of the normal NZ Transport Agency funding process. Normally, roading projects are chosen by a process largely outside of politics: collected petrol excise and road user charges in the Land Transport Fund are used for road maintenance and for new roading projects, where the projects are ranked in importance by bureaucrats rather than politicians. These ones were chosen by the National Party and funded from revenues outside of the Land Transport Fund.

a) Explain the basics of pork-barrel policies and why they might differ between electoral systems.

b) Why might a government agree to leave roading decisions to an arms-length body?

c) Was the roading announcement above surprising? Why or why not? Explain National's decision.

One secret in my assignments and exams: I often didn't really know what the answer was. All that grading rubrik stuff we were supposed to have done this year, well, that wouldn't have gone well for part c of this question as I don't have a great answer here. Students who could apply the theory well to the case at hand would do well, and those who came up with explanation that didn't demonstrate any understanding of the theory failed.

In Part a, I'd expect some discussion of the basics from Persson & Tabellini and from Stratmann & Baur.

In Part b, I'd expect some discussion of the benefits of delegation. In a FPP system, such delegation is more needed than in MPP, because every MP will be tempted to skew things towards their own districts. We might expect a delegation to a partisan committee that weighs up overall benefits to the governing party, but not to a neutral committee. Under MMP, you could get bipartisan sustainable agreement to leave it to a nonpartisan committee because the benefits of distributing geographic pork are more limited, as far as the Party's concerned, but individual district MPs will still try to push for it anyway.

In Part c, well, I haven't a great answer. Maybe National's doing it as a sop to the hinterland in general, reckoning that Auckland won't care enough to punish them for it. I wonder what my students would have done with it.

What's really irritating here is the precedent. Once we've broken the general user-pays nature of the National Land Transport Fund, all bets are off. When the system's working, the fees motorists pay are what pay for highway construction and maintenance, with some local Council contribution (half) toward local roads. If you want rail lines and other stuff, that comes out of general revenues: it can't come out of petrol excise, 'cause that's for roading projects. When you break that deal and run partisan allocation of funding for transport projects rather than leaving it to the Transport folks who are meant to be running things through a cost-effectiveness filter, well, who knows what messes might yet come.

Do read Transport Blog's excellent discussion:

Perhaps the most worrying thing about this announcement isn’t so much the projects themselves but that the government is getting more and more involved in picking projects rather than leaving it up to the NZTA to decide on spending based on merit. It started with the RoNS and last year we got the Auckland package.

When highways are ribbon-cutting triumphs for MPs rather than mundane bureaucratic decisions, I expect we get worse outcomes.

I also thank @zippygonzales for related discussion.

Update: Just remembered that I was in a Twitter argument last week about how we needed to keep highway funding separate from public transport funding because it's harder to go on dumb C>B roading sprees when you have to fund it from petrol excise and road user charges. Hmm.

Melbourne gets it

Alan Davies reports on housing in Melbourne:

[Planning Minister] Mr Guy included some astonishing ABS statistics on new dwelling approvals in his media release. They show that more dwellings – both detached and medium/high density – were approved in metropolitan Melbourne between January 2010 and April 2014 than in metropolitan Sydney (see exhibit). According to Mr Guy:

Since 2010, 54 per cent more homes have gained building approval in metropolitan Melbourne than in Sydney, and 11 per cent more than the entire state of New South Wales.

That’s an extraordinary set of numbers. Their significance is underlined in Mr Guy’s next sentence: by building more homes, he says, Melburnians “are ensuring we won’t have the drastic and harmful housing shortage Sydney is experiencing”.

He provides this picture of dwelling consents, January 2010 through April 2014:

Dwellings approved, metro Sydney and metro Melbourne, Jan 2010-April 2014 (source data: Minister for Planning, Vic, media release)

Melbourne has a bit less that New Zealand's population. They averaged about 3600 consents per month from January 2010 through April 2014.

Housing Minister Nick Smith issued a press release in April celebrating a massive rise in New Zealand dwelling consents:

“There were 1999 consents issued in March 2014 – the highest for the month of March since 2007, and an increase of 36 per cent from March 2013. Today’s figures also show the highest number of consents issued in the first quarter of any year since 2007 and an increase of 25 per cent on the first quarter of 2013. They reflect a steady trend of growth which has seen the number of consents continuously rising since March 2011,” Dr Smith says.

It's good that things are moving in the right direction, but Auckland and Christchurch have a ways to go yet.

Back to Davies:

Some of the complaints published regularly in The Age about sprawl and the rate and scale of development in the centre of Melbourne are important and warrant the close attention of planners. But as the stark contrast between housing supply/prices in Melbourne and Sydney shows, everything comes at a cost. 

At least in comparison to Sydney, Melbourne is getting some aspects of housing supply mostly right, especially in the city centre and the fringe. Progressives who’re concerned about issues like inequality and social justice need to understand everything involves trade-offs; they need to factor in the big picture as well as traditional planning concerns.

The new metropolitan strategy for Melbourne, Plan Melbourne, actively limits the scope for construction of medium density housing in the established suburbs (see Does this strategic plan really spurn sprawl?). Mr Guy therefore needs to make sure that his proposed alternative sources of supply, especially urban renewal areas, have the muscle to keep up with demand.

I sense a note of scepticism in the last paragraph.

Update: the latest numbers, for May 2014, have 2,125 new dwelling approvals in New Zealand.

Perfect lecturing t-shirts

Figures. The year that I'm leaving for a likely-to-require-a-suit job in Wellington, these absolutely perfect lecturing t-shirts come into existence. So frustrating.

Perfect for the Econ 336 lecture on Anarchy, the State of Nature, and Constitutional Political Economy, or for the grad version.

But this would be a close runner-up:



For my 224 lecture on the economics of drug prohibition, but only by allusion:



Anybody lecturing on Economics & Psychology would need this one, or just on rat choice:



Intermediate micro with calculus? They've got you covered.



Hitting a bit of philosophy of science?



I wonder whether they'd sell me ties with these designs....

Does the New Zealand Initiative do casual Fridays? I'll have to check....

Update: Seamus pines for a Locke t-shirt. As he lectures in a jacket and tie, we'll file this under "notional rather than effective demand".

The Scooter Future

The University of Canterbury's Sustainability Office has produced this lovely, glossy, report on the University's plans for bicycling for 2014-2022.

There's a lot of great stuff in here. Dedicated cycleways on-campus so that bicyclists won't have to deal with annoying pedestrian students, free bicycle maintenance sessions, and, this:

There has been a strong call across campus for water fountains and/or water bottle refill stations. Currently the UC community consumes approximately 100,000 units of bottled water annually. This adds cost to our recycling system and these bottles are an environmental problem internationally. The City of San Francisco recently banned the sale of bottled water. Water refill stations combined with water fountains can be purchased, such as the Aquafil Filtered Water Fountain and Bottle Refill Unit (Figure 26). These need to be considered as part of the overall plan for cycle routes and parking facilities.

Naysayers might think that a tap and a hose makes for a more economical and just-as-good solution in a city with great town water supply and during financially constrained times when many departments are undergoing redundancies, but they clearly lack the Sustainability Office's vision. And, while a tap and hose at Mitre 10 might cost $20, there's no price listed on the Aquafil website. So it can't be that bad.

The biggest problem with the plan, though, is one clear lack of vision.

Here is the vision they're lacking:



How, in good conscience, can the Sustainability Office continue promoting something as unsustainable as cycling when scooters are clearly the future? Look at that guy: future. Further arguments:

• Scooters are much cheaper than bicycles. A scooter-friendly campus is one that's accommodating to lower-income students rather than rich hipster students able to afford fixies. Don't they care about the poor?
• In addition to and entirely unrelated to their being cheaper, scooters also use up fewer precious scarce materials. They're lighter, so fewer metals go into their construction. Their smaller polyurethane wheels don't require rubber, so that has to be good.
• They require less expensive on-campus infrastructure. 
• The cycle plan talks about putting in air compressors for the cyclists. Air compressors use electricity, and all sustainability-minded people know that using electricity kills kittens. Scooters can never run a flat.
• Scooters fold up for convenient carrying into lectures. Bicycles need big dedicated storage facilities. 
• The cycle plan notes the big problems we have where pedestrians and bicyclists have to interact on paths; it calls for dedicated cycle paths separate from pedestrian paths. But we all know that every inch of asphalt laid on our precious green grass is a sin against Mother Earth. Our campus is Green and must stay that way! Should we pave the whole thing over, or at least hundreds of square meters, to accommodate the cyclists? Or, should we encourage the Scooter Shift? Scooters zip around pedestrians with aplomb, or at least with less plomb than do bicycles. 
• Bicyclists use up our scarce lycra resources, which really are more needed in swimwear if we want to be honest about it. Scooters never do.
• Finally, because bicycles are slightly more efficient machines than scooters, you get more exercise per kilometer on a scooter. Haven't they heard of the obesity crisis?

I've been using a scooter on campus for the past two years. It's wonderful. There was the one wipe-out resulting in a cracked elbow, but I've no regrets. 

Out with the lingerie, in with the beer

A lingerie retailer on Christchurch's New Regent Street has turned her shoppe into a craft beer bar: The Institution.

This bit from The Press's story puzzles me though. 

She hoped to serve alcohol upstairs while operating Hot Damn! on the main floor. However, consent rules required a 2-metre x 2m wheelchair-capable toilet in a shop 4m wide so it was decided the entire space would be devoted to the bar.

I would be pretty surprised if the store included an elevator. If it did include an elevator, I can understand a Council rule wanting the wheelchair-capable toilet in the upstairs bar. If the bar had only been located upstairs, though, and if access were only by stairs, I'm a bit curious why Council might insist on a wheelchair-capable toilet in an upstairs-only bar accessible only by stairs. Perhaps the licence would have allowed customers to bring their drinks downstairs with them, triggering the toilet requirement?

I'm happy that there'll be another craft beer bar in Christchurch.

But does it really make sense that Christchurch's building regs would have required full wheelchair-capable toilets in tiny tiny venues?

Auckland parking

NBR reports that the supermarkets aren't happy with Auckland's proposed new parking regs [gated, sorry].

It seems that Auckland's proposed limiting supermarkets to one car park per 200 square meters of floor area. The supermarkets are right that this will put a substantial hindrance on their operations; I'm glad they're opposing it.

At the same time, the supermarkets are opposing the removal of minimum parking restrictions on smaller businesses, figuring that those businesses' customers will free-ride on supermarket-provided parking. They might, but supermarkets are also perfectly able to place restrictions on permitted parking within their facilities. The most obvious solution is to gate the exit and provide free exit on scan of a supermarket register receipt. You don't even really need staff on it - the airport here in Christchurch does it all automatically. It might not be cost effective to do it, but it's then pretty debatable whether the potential externality is big enough to justify compelling all small businesses to supply parking.

Further, much of the potential externality gets internalised where supermarkets serve as anchor tenants in malls or strip malls.

Why do Councils figure they have to regulate this stuff? Is Auckland going from mandatory parking minima to mandatory parking maxima? Can't we just let property owners decide how much parking they need and how to restrict access?

Tax incidence isn't a subsidy

Suppose alcohol excise doubled. As you walked down the supermarket aisle, you saw that excise tax pass-through rates varied from product to product: low-cost product prices didn't go up quite as much as you'd expected they would.

Does this mean that supermarkets are subsidising lower-priced products? The University of Sheffield / East Anglia alcohol folks think it does.

The findings, published today in the journal Addiction, showed that supermarkets responded to tax increases by subsidising prices of cheaper products. Price rises for cheaper products were up to 15 per cent below the level expected if the tax increase had been passed on fully. 

Although under-shifting affected around one in six of all product lines, these drinks account for a large proportion of total sales: approximately 68 per cent of beer, 38 per cent spirits and 31 per cent of cider sales. 

There is a likely implication on health with previous research showing the heaviest 5 per cent of drinkers in the UK population, classified as higher-risk drinkers according to NHS guidelines, buy 33 per cent of all shop-bought alcohol and favour cheaper supermarket products. Subsidising cheaper alcohol when taxes are increased is likely to lead to smaller reductions in excessive alcohol consumption, and consequently smaller reductions in the harms caused by excessive alcohol than if tax rises were passed on in full.

Paul Dobson, professor of Business Strategy and Public Policy at UEA, said: “Subsidising cheap alcohol might be attractive to supermarkets in their efforts to increase the number and frequency of store visits that shoppers make, but it is socially irresponsible when it encourages excessive consumption. 

Ok, let's go back to the basics on tax incidence again.

First, we rarely expect perfect price pass-through. The burden of any tax increase will be shared between buyers and sellers depending on the relative price elasticity of the two groups. We get perfect pass through where demand is perfectly inelastic (consumption doesn't vary at all with price), or where supply is perfectly elastic. Otherwise, they share the burden. So undershifting just tells us that we don't have perfectly inelastic demand or perfectly elastic supply. If demand is perfectly inelastic, then prices are a dumb policy for trying to curb consumption in the first place. Supply's likely to be pretty elastic, but perfectly?

Now let's make things a bit more complicated.

Suppose that we have two alcoholic product categories in perfectly separated markets. In both cases, supply is pretty elastic. In the first market, customers are moderately price sensitive on the whole, but don't put a lot of effort into price comparison shopping. In the second market, customers are much less price sensitive when it comes to total consumption, but are incredibly price sensitive when it comes to product or outlet selection. So in market A, customers don't flip brands or stores much when prices go up, but they will scale back total purchases. In market B, customers will flip brands or stores immediately for a penny's price difference while not changing their total consumption very much.

We typically say in tax incidence theory that the relatively inelastic side of the market bears the greater part of the tax burden. If customers would flip to other brands or other retailers really quickly in market B, we'd expect that the retailers and producers would bear a greater part of the burden in market B than in market A. It's going to be a bit complicated by that I'd expect total demand at the bottom to be more price inelastic than in the middle ranges, but the main action here should be in sensitivity across brands and retailers if there are some rents going to producers through imperfect competition.

Again, we get differential responsiveness to the excise change without any "subsidy" to lower-cost products.

The most puzzling thing the paper finds is supranormal pass-through on the higher cost products. I expect this is what draws the "subsidy" explanation. For me, it instead upweights something I've heard a lot from smaller brewers but hadn't expected would have huge absolute effects. They've argued that, because excise gets paid at the brewery/distillery at point of production, and because everybody along the way then takes margin on the total price on the product coming out of the plant, you should expect more-than-proportional pass-through. I've not worried about it a lot, because the excise component of an $8 half-litre bottle of something by Three Boys, Yeastie Boys, Emersons, Panhead or otherwise really isn't that huge, so the absolute effects there wouldn't be huge either. But it would show up in these kinds of measures of retail-end pass-through rates.

Nerd Pride

Tyler Cowen reminds us of a Hanson point: politics is about status.

I was disappointed but not surprised by this passage by Gary Silverman:

What I like about Obamacare is that it shows some respect for “those people” – as Hudson called them in Giant – who are good enough to work the fields and mow the lawns, and build the roads and sew the clothes, and diaper the babies and wash the dishes, but somehow aren’t good enough to see a doctor from time to time to make sure there is nothing wrong inside.

That is in fact what most of politics is about, namely debates over which groups should enjoy higher social status and which groups should receive lower social status. Of course critics of Obamacare have their own versions of desired status reallocation, typically involving higher status for the economically productive.

...

The deeper point is that virtually all of us argue this way, albeit with more subtlety. A lot of the more innocuous-sounding arguments we use all the time come perilously close to committing the same fallacies as do these quite transparent and I would say quite obnoxious mistaken excerpts. One of the best paths for becoming a good reader of economics and politics blog posts (and other material) is to learn when you are encountering these kinds of arguments in disguised form.

I agree.

And so we come to Noah Smith's article wishing for higher nerd status, or at least an end to nerd-bashing.

Seriously, America. The nerd-bashing has gone too far. Sure, there is a grain of truth in all of the criticisms of the tech industry -- but only a grain. Yes, startups are riskier than many founders realize; but founders are people with good skills who will never go hungry. Yes, San Francisco rents are out of control, but this is more about development policy and NIMBYism than Google and Apple. Yes, inequality is increasing, but it’s increasing across all industries and classes, and bashing Silicon Valley isn't going to stop the march of automation. Yes, big American companies and corporate governance need to improve, but bashing “disruptive” startups isn't going to help the situation. Yes, some tech companies ignore the public interest when pushing for deregulation, but show me an industry that doesn’t do that. Yes, there are sociopaths and wackos among the ranks of tech entrepreneurs, but they’re certainly a tiny minority. (The only tech industry problem that really seems to live up to the hype is the sexism.)

...

We’re looking for rich, successful people to bash. And Silicon Valley happens to be where the rich, successful people are right now. So we’ve turned on the nerds.

... 

Still, I’m irked. I’m a child of the 1980s, when jocks ruled the high schools, and nerds were confined to the basement while the good ol’ boys slapped backs and made deals. When the bespectacled Bill Gates became the world’s richest person, something changed for the better, and I don’t want to go back to the old days. The tech backlash is just another situation where America needs to put aside its urge to turn inward and demonize some subset of the population. We should work to fix the problems associated with the industry, of course, but vitriol isn't the way to do it. The nerds are not the hosts of Mordor.

 Bryan Caplan arguably predicted much of this in his nerd/jock theory of history:

Notice: For financial success, the main measure where nerds now excel, governments make quite an effort to equalize differences. But on other margins of social success, where many nerds still struggle, laissez-faire prevails.

It's suspicious - and if you combine the Jock/Nerd Theory with some evolutionary psych, it makes sense. When the best hunter in the tribe gets rich, his neighbors will probably ask nicely for a share, if they dare to ask at all. But if the biggest nerd in the tribe gets rich, how long will it take before the jocks show up and warn him that "You'd better share and share alike"?

Punchline: Through the lens of the Jock/Nerd Theory of History, the welfare state doesn't look like a serious effort to "equalize outcomes." It looks more like a serious effort to block the "revenge of the nerds" - to keep them from using their financial success to unseat the jocks on every dimension of social status.

I'd love to see a version of Piketty that looks at inequality in dating success for those aged 16-25. Has that inequality gotten larger or smaller over time? Does anyone know? Does anyone other than the nerds care?

It wouldn't be hard to build a stylised case that social changes from the 1960s through to present that decoupled dating from marriage-search for the first decade of dating strongly benefited the jocks at the expense of the nerds. But we have no empirics on it. How would a Herfindahl dating concentration index change over time? Or a Gini coefficient?

Which inequalities matter is more interesting than what's going on on any particular margin of inequality.

When land rules are wrong, everything's wrong: episode 13 (or thereabouts)

When land use restrictions are wrong, it's hard for anything else to be right.

Today's example: what should be a great news story for New Zealand, that more people want to move to, or back to, New Zealand, instead turns into "Dey turk yer house!".

If we had a well-functioning housing market, increased demand for housing would be met by more townhouses and apartments downtown and new housing developments in the suburbs. The price of housing would go up a bit as resources were drawn into housing from other uses, but only by enough to draw those resources in.

Instead, Councils have made it awfully hard for supply to respond to changes in demand. Push out the demand curve with a relatively elastic supply curve and prices don't move much. Do it instead with a relatively inelastic supply curve and prices jump. The time path of housing prices follows migration patterns pretty closely, as Donal showed a few months ago. Easing up the supply restrictions would attenuate the migration-related housing price fluctuations.

It's easy for Kiwis to see foreign-looking people at house auctions in Auckland and elsewhere and blame them for taking the houses. It's harder to see the bureaucrats who've turned the housing market into gladiatorial combat for an existing stock of houses. I expect the anti-foreign baiting from the likes of Winston Peters; it disappoints me rather more when the Greens blame foreign "speculators" for the housing price surge. Update: and here's Labour.

I wonder how much anti-migrant sentiment in New Zealand would be attenuated if Councils hadn't made it the case that a house for a migrant is one fewer house for the median voter's kids.

HT on the Hosking editorial to WhaleOil.

Stadium exam questions

We still don't know whether Christchurch will get a big covered stadium.

Meanwhile, in Dunedin:

The idea of mothballing Dunedin's Forsyth Barr Stadium might raise eyebrows, but it is officially on the table for the Dunedin City Council.

The move was confirmed by council staff yesterday, even as Mayor Dave Cull said it was not a ''particularly constructive'' idea and was unlikely to solve the council's stadium-sized financial headache.

''My personal view is you can mothball the stadium but you can't mothball the debt, so you may as well have the stadium,'' Mr Cull told the Otago Daily Times.

His comments came after council chief executive Dr Sue Bidrose said mothballing the venue was one option among many being considered as part of the stadium review.

The review, which aimed to address $3.79 million of losses forecast by Dunedin Venues Management Ltd over the next three years, was announced in January and due to be completed by early August.

I really don't know whether mothballing helps: it depends what portion of the ongoing losses are sunk for the Council and what part are operational losses that could be stemmed by shutting down.

I do expect that Dunedin stadium's financial prospects are worsened if Christchurch gets a big new stadium that would draw acts that might otherwise go to Dunedin, though there aren't many going there now.

I also expect that somebody in the Otago Econ department could set a fun intro micro exam question hitting the usual firm shut-down point problem using Forsyth Barr as set-up. If I were setting it up, I'd specify that I was using made-up numbers, and set the solution such that the stadium is worth keeping open, but only because the main debt costs are sunk. In part (b) I'd then ask whether the next city up State Highway 1 should build an even bigger stadium that would have similar finances. Ideally, the students would recognize that it's better to avoid sinking the costs in the first place.

Top 10

I provided today's Top 10 list over at interest.co.nz. A few highlights:

• American regulatory nonsense facing would-be craft brewers;
• Zach Weinersmith on the aerodynamic qualities of infants;
• And, can we avoid all the catastrophes?

Interest.co.nz has been on a roll lately. Friday's Top 10 had more on the continued housing shortage in Christchurch. Bernard Hickey had a nice piece reminding folks outside of Auckland why Auckland supply shortages are bad for the whole country.

Interest also pointed me to this piece by Phil Taylor over at the Herald; I'd missed it when it came out in April. It quotes Ngai Tahu Property's Tony Sewell on the cost of building materials in New Zealand; Sewell argues all of the material costs are far lower in the US and contribute to the high cost of NZ housing. 

I wonder why nobody's bringing in container loads of gib board and fittings. 

Industry feedback on an options paper was due last December. At the time Smith indicated removing or reducing high duties on some imported building products, and reviewing anti-dumping duties were being looked at. The Government believes the price of plasterboard would reduce if duties were removed. The impact of nominal tariffs of 5 per cent on most items used in housing construction would have less impact because our free trade partners are already exempt or the levy they pay is being progressively reduced.

An unclear certification process, liability issues and a risk-averse industry since the leaky homes debacle were cited in submissions as impeding innovation and adoption of new products and services.

I don't buy that a 5% tariff, dumb as it is, can explain the cost differences between here and the States. It doesn't seem plausible that a risk-averse building industry's driving things either: if it were possible, somebody else would be bringing in the container loads of American gib board, showing the builders that it's perfectly fine, and selling it at a fraction of the NZ price. Some other impediment must be there blocking it.

Mobile and Affordable

I'll be attending Alain Bertaud's talk, though I'm not sure whether I'll be doing it here in Christchurch or up in Wellington. I hope to see many of you there. 

Mobile and affordable: The future of our cities In recent decades, urban planners have been inventing all sorts of abstract objectives to justify their plans for our future cities: smart growth, liveability, and sustainability are among the most recent fads. There is nothing wrong, of course, for a city to be smart, liveable, or sustainable. But for some reason these vague and benign sounding objectives often become a proxy for imposing planning regulations that severely limit the supply of land, resulting in ever higher housing prices. They also reduce the ability of cities to cope with their residents’ transport needs. New York University senior scholar Alain Bertaud, himself a former principal urban planner at the World Bank, argues that it is time for planners to think again. They need to abandon abstract objectives and focus their efforts on just two measurable outcomes: citizens’ mobility and housing affordability. Join us for a thought-provoking challenge of current urban planning orthodoxies.   About the Speaker: Alain Bertaud is an urbanist and, since 2012, a senior research scholar at the NYU Stern Urbanisation Project. Currently, he is writing a book about urban planning that is tentatively titled Order Without Design. Bertaud previously held the position of principal urban planner at the World Bank. After retiring from the Bank in 1999, he worked as an independent consultant. Prior to joining the World Bank he worked as a resident urban planner in a number of cities around the world: Bangkok, San Salvador (El Salvador), Port au Prince (Haiti), Sana’a (Yemen), New York, Paris, Tlemcen (Algeria), and Chandigarh (India). Bertaud’s research, conducted in collaboration with his wife Marie-Agnès, aims to bridge the gap between operational urban planning and urban economics. Their work focuses primarily on the interaction between urban forms, real estate markets and regulations.   Auckland ​Time and Date: Monday 28 July 2014 5.45pm - 6.00pm Arrival 6.00pm - 7.00pm Seminar 7.00pm - 7.30pm Networking Location: Level 22 PwC Tower 188 Quay Street Auckland    Wellington ​Time and Date: Wednesday 30 July 2014 5.45pm - 6.00pm Arrival 6.00pm - 7.00pm Seminar 7.00pm - 8.00pm Networking Location: Room GBLT1 Victoria University of Wellington Law Buildings 55 Lambton Quay Wellington    Christchurch ​Time and Date: Thursday 31 July 2014 5.45pm - 6.00pm Arrival 6.00pm - 7.00pm Seminar 7.00pm - 7.30pm Networking Location: CDC (Canterbury Development Corporation) Offices Level 1, 99 Cashel Street Christchurch

Food of colonisation?!

The Māori Party weighs in on the anti-sugar brigade's latest campaign:

“In February this year, I had the honour of launching the discussion document to reduce sugar-sweetened beverage consumption in New Zealand,” says Tariana Turia, Māori Party Co-leader.

“Today we are pleased to endorse the six recommendations put forward by the panel, as an important platform for our ongoing policy in keeping whānau well.”

“As a party, we have promoted the view that excessive sugar intake is a social hazard. Consuming more than ten percent sugar in a daily food intake leads to a higher risk of dental problems as well as contributing to weight gain. We simply can’t afford to ignore a fatal addiction to sugar,” says Te Ururoa Flavell, Māori Party Co-leader.

“The Māori Party has championed a campaign to keep our families strong, healthy and intact by protecting them against activities or substances which are known to be hazardous to people’s health. Excessive sugar intake is another barrier to our health, as much as tobacco use, alcohol abuse and problem gambling harm.”

“I have talked to our families about sugar being the food of colonisation – a product which takes away from our abilities to focus on living healthily,” says Mrs Turia.

“We have already approached the National Government with a proposal to introduce excise tax on sugar sweetened beverages.

Sugar: the food of colonisation.

I understand that Civilisation VI, when it comes out, will have special sugar units that you can use to keep city-states compliant and to reduce rioting in cities you've just taken over. But only if you already have sugar as a resource and have worked them with plantations. And using too much sugar invites Godzilla attacks on the city later on.

Homer Simpson was right.

Interpretations

I presented to the Ministerial Forum on Alcohol Advertising and Sponsorship on Monday; the Forum put me in with the industry folks, though I'd have had a bit more fun had I been in the session with the public health presenters earlier in the morning.

Tuari Potiki, of the NZ Drug Foundation, opened by asking me a really good question. I didn't have a great answer on the spot, so I sent more considered thoughts on it to the Forum on getting home on Tuesday. As blogging will continue to be light as I work to and past a couple deadlines, and that no bit of writing be wasted, I'll post it here as well.

Hi Anne,

Tuari asked me in Monday’s session why economists and public health researchers can reach different conclusions about the same data or the same studies. It’s been rolling around in my head since then; it was a damned good question.

Here’s the start of an answer; feel free to share it with the Forum.

The training for applied empirical economists is pretty different from that in public health.

In health research, you do get a lot more randomised trials where it’s easy to sort out causality. That is definitely far from being the whole world of public health research, but it’s a pretty important part of it. And, it forms the core of the background training, as I understand things, in that discipline. If you have a large group of people and split them into two or three treatment groups and a control using randomisation, differences across groups are almost certainly going to be due to the treatment you apply. There are good standard statistical tools for that kind of problem.

In economics, nobody really lets us play with experimental treatments of that sort on national economies: we don’t get to run clinical trials on economic policy. And, in microeconomic analysis, it’s pretty rare that somebody would let us figure out the benefits of, say, schooling by setting a control group to get no schooling. Instead, in pretty much every case, we have to make inferences from messy data where we have absolutely no guarantee of which way causality could run. Every bit of our training then, from intermediate level upwards, focuses on the really tricky problems in trying to infer the effects of X on Y when people’s choices on X will, in part, be determined by their underlying characteristics and where those underlying characteristics also strongly affect Y. If we observe that higher X correlates with higher Y, we always have to check what part of the effect is due to X, and what part is due to the kinds of underlying characteristics that correlate with both X and Y.

Here’s a more concrete example of the kind of thing each and every applied economist will be familiar with. Suppose we wanted to know how much benefit there is from a kid’s getting an additional year of schooling. Well, we could just look at differences in wages between kids completing only NCEA Level 1 and those completing either 2, 3, or different levels of tertiary study. But if we said that difference were just due to the schooling, we’d be entirely wrong: the kids who stop at NCEA Level 1 are different from the kids who go on to graduate school for reasons other than just education. And so we need things like differences across US States in the age at which you’re allowed to drop out of school, or differences in the amount of school you get by that age because of differences in dates of birth in combination with the school calendar, to try to see what proportion of the effect is due to schooling and what proportion is due to other underlying differences.

Every reasonably-trained applied economist will have taken a couple of courses at undergraduate level and a couple more at graduate level that go through these complications in excruciating detail and the techniques appropriate for dealing with non-experimental data. I’m sure there’s some similar coursework in this stuff in public health, but it’s far less at the core of the public health toolbox. It’s an add-on there; here in econ, it’s baked-in.

So that would explain some of the differences in how economists and public health people might read studies like Jones and Magee (2011). When I see it, I see something potentially useful as a “how not to” example in econometrics classes; public health people like this kind of approach though. I’d be happy to list all the problems in that paper, but you might not want to take my word for it. If you’d like, send a copy of it instead to whoever teaches graduate applied econometrics at Otago (Steve Stillman), Canterbury (Bob Reed or Andrea Menclova), or elsewhere (I don’t know who teaches Metrics at each of the other departments). They’ll likely say the same thing I would: failure to adjust their standard errors for the multiple comparisons problem, strong potential for reverse causality given recall data, odd choices on control variables (why do they control for friends’ drinking in the subsamples but not in the aggregate sample?), and that it’s rather likely that a fuller set of controls would soak up much of the remaining effect currently attributed to advertising. If they tell you the same general thing I do, you should put less weight on submissions citing that paper as authority; if they don’t, put less weight on mine (but please tell me if economists I respect disagree with me on this, as I’d then need to check where I went wrong).

So that addresses some of the differences in how we’d approach empirical studies.

But there is a broader difference. For the past several years, I’ve been watching the data on alcohol consumption and harmful effects of alcohol, seeing the continued decline in problems, and been utterly perplexed by what seems to be a never-ending sequence of media hits by public health scholars saying that New Zealand has some binge drinking crisis. To me, crisis means that things are substantially worse than they’ve been previously, or maybe that we’re way out of line relative to other comparable countries. And neither of those is the case. So what is it? It’s one that I’ve thought about for a few years and haven’t come to any great answer on, but here’s my current thinking on it.

A lot of the people who work in the public health area have a lot of front-line exposure to individuals and families that have just had horrible times with alcohol abuse. It would be really really hard to spend a lot of time with people who have very serious problems and not feel that there’s a crisis, even if the overall statistics show reasonable improvement: it’s a crisis for those families. The same laudable and wonderful empathy that brings these researchers to work with these families also drives them to look for policy fixes, however tenuous the link might be between the policy proposal and any real outcome. Worse, for some, they’ll come to view the alcohol industry as being the enemy, so if a policy has some small chance of helping the families they deal with, any cost that might fall on either industry or moderate drinkers just seems trivial by comparison. And, I also worry that “Big Alcohol” also gives a convenient scapegoat rather than having to work through the precise dysfunctions affecting the families they’re meeting. Finally, I worry a lot that some of the constant “Binge Drinking Crisis” talk has a bit of the Noble Lie to it: that pushing a line saying there’s a crisis builds public support for the kinds of policies that they think might help the families they’re trying to help, even if there really isn’t a crisis. And that last one’s really risky: what happens when people start ignoring the really really important and true things that doctors say about health because they’ve been stretching things a bit on alcohol?

The above on the broader difference is just impressionistic; I could easily be wrong. But it’s my current best guess informed by a few years’ of interaction with the folks over in public health departments.

A final, and reasonably substantial, difference between economists and public health researchers is that economists typically assess policies relative to a broader conception of costs and benefits, weighing up the benefits of a policy to those benefitted by a policy and weighing that against both the implementation costs and the costs to those who are harmed by the policy. So, on a policy like alcohol minimum pricing, economists would consider the potential health benefits among alcoholics while also weighing the losses imposed on moderate drinkers through higher prices. Public health researchers instead tend to assess policy against a harm-minimisation standard with perhaps some accounting for implementation costs but with no particular consideration of the harms the policy might impose on others. Again, this will come down to some differences in background. Traditionally, when public health dealt mostly with communicable diseases, it would be pretty tough to point to the benefits of, say, smallpox: we don’t need to consider the losses imposed on people who enjoy smallpox if we’re thinking about vaccination policies. Nobody enjoys smallpox. So measures of cost-effectiveness then tend only to look at how much the vaccine might cost and whether it saves enough disease burden to be worthwhile. In economics, we more typically deal with policies that have real trade-offs, and so are far more used to thinking in that kind of framework, where we’d have to add to a measure of cost-effectiveness the costs imposed on those who do not like the policy.

I’m of course available should you have other questions. It just bugged me that I hadn’t answered Tuari’s question adequately. It’s something that I’ve mulled over for a while, but that I’d not had to pull together succinctly before.

Best,

Eric Crampton

I also strongly recommended that they pay attention to Jon Nelson's metastudy of results in this area.

My full submission is below.

Submission to the Ministerial Forum on Alcohol Advertising and Sponsorship

Update: Yes, there are epidemiologists who know how to do this stuff properly. I still don't get how things like Jones and Magee pass peer review in their journals though.

Irrational Expectations in Cricket Redux

This post is in part a follow-up post to this one from 2012 about irrational expectations in cricket, but is more a response to some recent twitter activity in the U.K. BskyB have been using WASP in their coverage of the recent ODI and 20-20 series between England and Sri Lanka, and this has provoked some angry twitter comments. Defenders like David Lloyd 

Folk who understand cricket don't understand WASP. Folk who don't understand cricket understand WASP .. "Who's winning?"
— David 'Bumble' Lloyd (@BumbleCricket) May 28, 2014

or Adam Lewis in this post, point out that a metric like WASP can be very useful for newcomers to watching cricket to give a sense of who is winning at any particular time and how comprehensively. The idea behind Adam’s post is that WASP tells cricket newcomers what experienced watchers already know in their gut. But just how good is the gut of experienced watchers? Well that is hard to measure, but I think it is reasonable to assume that highly paid captains of international teams probably have at least as good an intuition from the game from being actively involved. So let’s look at a very simple decision that captains have to make: whether to bat first or second on winning the toss.

I am currently working on a project with a student from India, Pranav Bhargava, to estimate rankings of teams. In the process we came across the following interesting result: A model that estimates the probability that the team batting second would win an ODI as a function of the quality of the two teams playing, fits the data better than one that estimates the probabiliyt that the team who wins the toss wins the game. Looking at the raw data, we find that the team batting second won 53% of the 1294 games played between May 2002 and May 2014, but the team winning the toss won only 51%. This is a small difference but it is masked the fact that the best team over this period, Australia, batted first more often. When controlling for team ability, the difference is more marked.

This makes no sense at all. While the team batting second wins slightly more often than the team batting first, indicating a second-innings advantage on average, the advantage will not apply in every game, depending on the pitch and the abilities of the teams playing. The captain who wins the toss has the option of choosing to always bat second, or to choose to bat first if these game-specific factors suggest that would be better. Accordingly, the team winning the toss should win more often than the team batting second.

O.K. so let’s give the captains the benefit of the doubt. It seems unlikely with such a large sample, but maybe the random toss has, by chance, been won by the weaker team more often than the stronger team. So we investigated this further. We measired separate team ability measures for each of the top 11 countries (the top 8 + Bangladesh, Zimbabwe, and Ireland) for when they won the toss and lost the toss, and found that for some matchups, losing the toss would be preferable to winning it! In particular, three teams—Australia, Pakistan, and Zimbabwe—make the wrong decision according to the data more than 50% of the time, and so would prefer to lose the toss if playing against a clone of themselves. The remaining teams make the right decision more than 50% of the time, but most are sufficiently imperfect that if playing against Australia or Zimbabwe, would be better off losing the toss and relying on the opposition to make the wrong decision! Only Ireland out of the top 11 teams has a decision record that makes it desirable for them to win the toss against any opposition.

So far, these results replicates results in Bhaskar (2007), but with a slightly different method, suggesting that the results are robust. One criticism of both sets of results, however, is that in using the full sample of games to estimate what should be the correct decision, we are using information from matches that would not have been played at the time captains made their decisions. So we divided the data into two eras of 647 matches each. We used the first era to estimate when it would be better to bat first rather than second, and then used this to compare outcomes to predictions in the second era. We find that teams win more than predicted when captains make the right decision and less than predicted when they make the wrong decision. Put another way, the variable on “correct decision”, is strongly and positively significant in a regression modelling the probability of success. And this uses only information on how well teams have played batting first and second in the first 6 years of the data to predict outcomes in the second 6 years. Real-world captains have more up-to-date information about how teams are playing as well as information about ground conditions on the day. 

At this point, I can’t see any comeback. The information available to our model is strictly less than that available to captains, yet our model can outperform international ODI captains quite significantly.

So what is going on? I think there are likely two sources of imperfect understanding by captains at play here. The first is that captains forget that this is a zero-sum game. If you are a team that is better at chasing than setting a score, but are playing against a team that is much better at setting than chasing, the optimal decision is to bat first, holding conditions equal. But teams possibly play to their own strengths rather than also considering their opponents weaknesses. Another possibility, that I suggested in the earlier post, is a misunderstanding of the regression fallacy: on average, the easier the batting conditions, the higher is the first-innings score. And, on average, the higher the first-innings score, the higher is the probability that the team batting first wins the game, since, on average, higher first innings scores indicate a better than average batting performance. But these two facts don’t in themselves imply that the team batting first has a higher chance of winning when batting conditions are easy.

There are other stories one can tell for the source of the errors made by captains, and we are investigating whether we see in the data what the source is. But the bottom line is that careful data analysis with limited information outperforms professional gut opinion with full information, and by a considerable degree! 

Tragedy of the AntiCommons: reviewer veto edition

Shaun Hendy reports on an accidental experiment in the effects of the number of referees on grant decisions.

In mid-2012, the newly formed Ministry of Business, Innovation and Employment (MBIE) inadvertently conducted such a trial, albeit by accident. When it assessed the quality of the funding proposals that it had received, the Ministry failed to ensure that each proposal received an equal number of external peer reviews. Some proposals received just a single peer review while others received up to four.

As I wrote in a post last year, this exposed their funding decisions to a potential bias. Even if two proposals were of equal merit, the proposal that by chance received more reviews would also be more likely to have at least one negative review. A cautious Ministry might be reluctant to fund proposals that received a negative review, even if all others were positive. Proposals that received more reviews would then be less likely to be funded than equally good proposals that, by chance, received fewer.

Indeed, more than a third of the proposals that only received one review were funded, while only one quarter of those that received two or more were successful. Was MBIE too conservative in its funding decisions?

To answer this question, we need to know how likely it is that this could have been generated by chance in the absence of bias. It turns out that without bias, one in every twelve funding rounds would produce such a skewed result, so while one might be suspicious, the data does not allow us to draw a solid statistical conclusion. Nevertheless, this example illustrates how we might use randomness to evaluate the effectiveness of our decision-making processes.

Hendy's post is excellent throughout, including some assessment attempts on the productivity of Marsden grants. He writes:

Closer to home, Adam Jaffe, Director of Wellington-based Motu Economic and Public Policy Research, is currently undertaking a similar study of Marsden funded projects. Using the discontinuity regression method, Jaffe is comparing the subsequent academic performance of those who just made it over the threshold for funding to that of those who just missed out*, on the assumption that differences in the quality of proposals and teams that are being compared will be small. Proposals that just missed out on funding are effectively being used as a control group for those that just made it.

Once the study is complete, Jaffe will be in a position to estimate the scientific impact that a Marsden grant generates. If he finds that the Marsden allocation process suffers from the same problems as that of the NIH, the fund may be able to take steps to improve this process and thereby increase its impact.

While that could tell us the output effects of winning a Marsden grant, it would be a really big mistake to aggregate up from that figure to the overall effects of the Marsden system. Why? The also-rans invested enormous effort into the grant-seeking process, some of which is then sunk on the grant's failure. So we start by overestimating the effects of the Marsden grant: the relevant counterfactual ought to be equally capable research teams who didn't bother applying for Marsden.

Second, even if there were a strong productive effect on those teams receiving funding, it's still possible for the system as a whole to be a waste: if total investments in grant-seeking exceed the returns from the granted projects, then the system does net harm. One study found that Canada's Natural Science and Engineering Research Council grants do net harm on this kind of basis.

I've watched colleagues put weeks of work into Marsden applications that went nowhere. I've seen the College run huge time-consuming workshops on how to improve your Marsden grant applications. Outcomes, at least in Marsden's Economics section, seem to be random-draw with weighting towards prior recipients. After being part of three unsuccessful Marsden applications from the Department and observing how the thing seemed to work, I concluded it a mug's game and not worth the effort. But because universities put just tons of weight on Marsden grants as compared to industry funding, people still invest in those lottery tickets.

It would be interesting to calculate NZ academia's collective person-hours invested in Marsden applications, both by applicants and by the reviewers. That time cost has to be part of any honest assessment of the system.

Crystal balls: tobacco plain packaging edition

When Australia was moving toward plain packaging, I expected that it would shift consumers toward discount brands and that you could simultaneously reduce tobacco company profits while increasing consumption, absent substantial-enough excise increases. Where brand appeal becomes less effective, we'd expect moves toward price competition instead. I'd written:

The tobacco industry's been pretty angry about plain packaging. If brand labelling mostly works to reduce competition across brands and to help maintain customer loyalty, we'd expect that plain packaging mandates will lead to a shift towards discount brands and lower prices absent further excise hikes. And that's also what Clarke and Prentice expect.** You can simultaneously have a policy anger the tobacco industry while increasing smoking if it pushes current smokers to discount brands, reducing the average price they pay and consequently increasing consumption while decreasing industry profits. The policy that's the enemy of your enemy isn't necessarily your friend.

And see here as well.

The "Scream Test" is a poor measure of whether a policy reduces harm: a policy that hurts some industry you don't like doesn't automatically make the world a better place.

Sinc Davidson reports that prices are dropping in Oz, despite excise increases, and that consumption's rising. Always-reliable Senator Nick Xenophon is consequently pushing for tobacco minimum pricing. A graph showing reduced tobacco expenditures has been making the rounds on Twitter; that can be entirely consistent with increased consumption where consumers are shifting to discount brands or if tobacco companies are dropping prices to maintain market share.

I suppose in full equilibrium, where the government raises excise sufficiently to get prices back up to ex ante levels, you'll have transformed some producer and consumer surplus into tax revenue, with excess burden in the form of reduced brand affiliative benefits for consumers who enjoy brand affiliation.

While I understand excise hikes for the next few years were scheduled a while back, I wouldn't be surprised if discounting and increased consumption led to excise increases greater than those previously scheduled.