Friday, 31 July 2015

Like Uber, but for dairy

There could be a lot of opportunities for Canadian dairy in opening up their markets to foreign competition, and in having foreign markets opened to their products. But there would be transitional costs.

The Globe and Mail reports on some relevant aspects here. But they miss the supply management angle. One important reason that Canadian dairy farmers oppose changes to the system is that they own a lot of quota rights. Under the Canadian system, the right to milk a cow costs money. And just like taxi permit owners in regulated markets hate Uber, Canadian dairy farmers hate New Zealand. But who can really blame them? If you were sitting on a big regulatory asset somebody proposed wiping out, wouldn't you object? 

There is a way around it though. In simplest form, it requires:
  1. The Canadian government buys all the dairy quota from all the dairy farmers. It'll be very expensive. Probably close to $30 billion.
  2. Canada gets rid of all the tariffs on dairy products at the border. It can maintain whatever sanitary requirements it wants - if some dairy practices in the US result in stuff being in milk that the Canadian government views as unacceptable, they could still ban whatever it is being in milk. Arguments around some kind of adulterated US milk coming over the border are really a separate issue: Canada can put whatever quality controls it wants on milk sold to consumers. It just can't do it in a way intended to set up a trade barrier.
  3. Since tariffs at the border are around 300%, prices on dairy products would plummet. Rather than let them plummet, the government would put in place taxes, applied neutrally regardless of country of origin, that are proportionate to the amount of price reduction you would expect with the change in the system.
  4. Why taxes? Because you need revenue to pay off the bonds you'd have to issue to pay off the farmers in step 1. You retire the taxes as the bonds are paid off.
  5. Since the price of milk to consumers is no higher, and likely a bit lower, than it was before, consumers are better off. They'd see it most in product diversity and quality. Since the farmers are paid off for their quota, they're not much worse off, though some get a lot of value from the lifestyle that comes with farming under that kind of system only some of which might be capitalised into the price of quota. And since freeing up dairy would get Canada into the TPP, if the TPP is of net value, Canada would be better off.
CD Howe had a different plan a couple years back.

Other things you should know: Fonterra is not a monopoly. I know that's the first thing that Canadians and Americans would point to. It's the second comment on that Globe and Mail piece:
New Zealand's milk supply is a monopoly. Fonterra controls almost 90% of the market and set the price according to a private formula. Fonterra includes farmer-owners (over 10,000) who hold shares that they can only sell back to Fonterra (although they are now experimenting with allowing farmers to sell/trade shares among themselves). As well, there is now a proportion of public non-voting "shares" that is legally separate from the actual company ownership.
Essentially, a form of supply management, and the retail price of milk in New Zealand is comparable to Canada.
Some of this is right. I'm not going to check the percentages or numbers - Fonterra is by all accounts the dominant local player. They set prices paid to their farmer members based on their forecasts of the results of the coming dairy auctions. A farmer who doesn't like Fonterra's pricing can join up with somebody else, or start their own processing company. Synlait is one of the bigger alternatives to Fonterra, but there are others. 

Fluid milk prices here are not cheap, but do vary with international prices. Where you see the real differences is in prices of processed goods: excellent ice creams and cheeses, and baby formula, are very reasonably priced compared to North American alternatives. Canada's system runs a really complicated set of protective tariffs and differential pricing on industrial versus consumer milk so that the costs of the whole apparatus remains opaque to consumers. If your cheese is not so hot and very expensive, do you blame supply management? Too many steps in the production chain for consumers to know where to pin the blame. 

Anybody in New Zealand, if they wanted to, could start a dairy farm asking nobody's permission - and certainly not Fonterra's. They could do on-farm processing of their own product, subject to the usual health regs, and then sell it to anybody who wanted it: again, no permission needed other than the check that you're running a sanitary facility. A farmer and his neighbour could write whatever contracts they wanted for the former to supply the milk and the latter to process it.
Fonterra is a big part of the New Zealand market. But if you milk a cow without their permission here, nobody cares. If you milk a cow in Canada without the dairy board's permission, they'll throw you in jail. 

Canadians need to stop seeing the quota management system as this big friendly thing protecting Canadian consumers from bad American milk. Truth is, Canada could set whatever quality controls it wanted on milk for sale to consumers. Some growth hormone that the government doesn't like in milk? You can ban its being in milk for sale to consumers, and you don't need supply management to do it. The dairy system instead is a lot more like the New York taxicab system. It needs a little Uber. 

Previously: 
Posted by Eric Crampton at 14:31:00 0 comments
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Police benefits

More evidence that the elasticity of crime with respect to police numbers is around -0.3.

Klick and Tabarrok previously used terror alert status changes to identify the effect of police numbers on crime in Washington, DC. This time, MacDonald, Klick and Grunwald use a geographic regression discontinuity design to identify effects where, on one side of the line, you have only regular policing and, on the other, you also have policing by the University of Pennsylvania.

Their result?
Personnel estimates from both the Philadelphia Police Department and the UPPD indicate that approximately twice as many officers patrol the Outer Penn Zone than the surrounding University City District. The area covered by Philadelphia Police in the relevant area is twice as large as that covered by the Penn Police, suggesting an effective increase in police presence on the order of 200 percent. Our estimate that UPPD activity is associated with a 60 percent reduction in crime suggests that the elasticity of crime with respect to police is about -0.30 for both violent and property crimes. These elasticity estimates are strikingly similar to those found in the modern literature on police and crime. Chalfin and McCrary (2012)'s recent paper provides a helpful summary of these previous estimates. Klick and Tabarrok (2005), Draca, Machin, and Witt (2011), and Di Tella and Schargrodsky (2004)—all of which use an exogenous shock in police deployment resulting from terrorism-related events—find an elasticity of approximately -0.30. Our results are also similar to those presented in Berk and MacDonald (2010) who examine a police crackdown in Los Angeles and find similar elasticities. The results from our investigation respond to concerns that short-term gains from police crackdowns are not sustainable. Instead, our results suggest that these crackdown studies may be generalizable if increased police presence becomes a permanent tactic in specific areas. 
A ten percent increase in the number of police reduces crime by about 3 percent. I expect that the American estimates would be a lower bound on the elasticity of crime with respect to police presence in New Zealand. If crime reduces with policing but at a decreasing rate, then places with fewer officers (per population) will see stronger effects from additional hiring.

The back-of-the-envelope estimates I'd run for my current policy issues class a few years back had a dollar in new police expenditure saving about two dollars in crime costs.

I expect you could find similar benefits in shifting police out of policing cannabis and into policing real crimes; it looks like that may already be under way.
Posted by Eric Crampton at 07:00:00 0 comments
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Wednesday, 29 July 2015

TPP Drug Trade-offs

I don't think that the extensions to drug patents hinted at under TPP are for the good. But it isn't obvious that they aren't.

Let's run the story.

Most new drug development happens in the US and EU, with more coming in now from China as well. It is ridiculously expensive to develop new drugs. Some of that is because the FDA makes things harder than they need to be, but a lot of it is real cost. The US has pretty strong drug patent protection to encourage investment in new drug development: nobody will spend hundreds of millions, or more, on drug research that might lead to one or two commercially viable breakthroughs if they can't reap the rewards on the ones that pan out.

On that story, New Zealand and others have been free-riding pretty hard. Don't get me wrong - this is great for New Zealand. We get a pile of generics out of India when they come off-patent here and the drug system saves tons of money. But we're contributing rather less to the general "let's develop more new drugs" effort. Price controls on pharmaceuticals do discourage new development (and here's similar EU evidence), and new pharmaceutical innovation saves lives.

You could imagine an international convention, agreed to by everybody, that would reduce global free-riding on research done in the EU and US in order to get more new drugs developed. We in New Zealand would pay more than we're paying now, but we'd also be paying a fairer share of the development costs of new drugs. Optimal pricing should still involve poorer countries paying less than richer ones, but you'd also have expected things like iPads to sell for less in New Zealand than in the US on the same kind of grounds - so that part might disappoint.

But think about the rhetoric on "doing our part" on global warming, and wonder why the same "doing our part" arguments haven't been made about pharmaceutical innovation to save lives.

Why am I still sceptical? The overall system still seems broken. First order gains in getting new drugs would come not by pulling a few more dollars out of places like New Zealand but rather by fixing the FDA so developing new drugs weren't so expensive in the first place. If there were an overall deal that improved processes at the FDA* while also making sure that everybody paid their fair share, that would be a winner for me.

At least that's my point estimate - I put a pretty wide confidence interval around it though.

* On that, I generally agree with Alex Tabarrok. See here here and here, for example. And Doug Bandow.
Posted by Eric Crampton at 09:45:00 0 comments
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Tuesday, 28 July 2015

Returns to education and the decline of the Marines

Oh, folks will have fun working out explanations for this one.


Brookings suggests that increasing college graduation rates could be behind it, where a college degree is required to become an officer. The drop in the IQ threshold for getting a college degree then is reflected in the chart above. But that can't be all of it, as the Marines could increase the GCT requirement for admission if the parchment no longer signals ability and if ability really matters more than parchment. It seems more likely that they're just not able to draw as well from higher ability cohorts.

Other plausible candidate explanations, though without data. They're all testable though:

  • Higher opportunity costs for high IQ people since the 80s.
  • Greater cultural disparaging of the military in elite circles, so it is not aspired to by those of higher ability.
  • Decreasing trust in that military is a force for good or really much needed (see the decline as the Soviets turned friendlier under Gorbachev, the levelling off and rise around Gulf War I, and the resumed decline after that).
  • Fewer smart but lower income kids needing to use ROTC to afford college with expansions in student aid. 
I'd bet on the first and last being most important. 
Posted by Eric Crampton at 15:39:00 0 comments
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A Hogan Compendium

Here's the complete list of posts by Seamus Hogan. Blogger doesn't make it easy to sort things by author, so I've just pulled them all into this post. I've bolded some of my favourites. They're sorted by category, then by date, with the most recent ones first. If I've missed any, let me know.

Cricket and Sports Economics:
Capital Gains Taxes. Seamus's argument against capital gains taxes, as best I'm aware, remains unanswered by NZ's CGT proponents.
Electricity markets
NZ Policy and Politics more generally.
Housing
Economics
The move to Wellington
The merits of the programme-that-was at Canterbury
Oh, Christchurch.
Miscellany
It all counted for, as Seamus might have put it, three-fifths of five-eights of bugger all for PBRF, but there's some great stuff in there.

And I will particularly miss his habit of emailing me pointing out errors in posts I've had in draft. I'll have to rely more heavily on post-posting review by readers leaving comment.

My NBR column on Seamus is here; the post of 18 July is here. His family are collecting memorial notes here. 

And here's Seamus's lecture on cricket, economics and the WASP.

Posted by Eric Crampton at 11:27:00 0 comments
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Monday, 27 July 2015

Glass Mountain

We always kept a sharp eye on the ditches when I was a kid riding in the back seat. Why? The glint of a beer bottle meant $0.10. Collect a dozen of them and you've got a $1.20. So Mom and Dad would have to keep a foot hovered over the brake just in case one of us saw a bottle - or even better, an abandoned case of empties. Then off to the Altamont Hotel to turn them in.

The Canadian system worked because all the bottles were standardised. There were two dominant brewers who used identical bottles. State-run liquor outlets combined with a bit of distribution through licensees like rural hotels meant a very limited number of distribution outlets: the trucks that dropped off the bottles could presumably pick up the empties for the run back to the distribution outlet.

I don't know whether the economics of the Canadian set up stacked up, but it was a system that could have made sense given the way the rest of it ran. In all cases, you have to weigh up the costs of picking bottles up, making sure none of them were chipped or damaged, cleaning them, and getting them back to the bottler, against the costs of making new bottles. If you don't like monetary calculations and prefer some kind of environmental accounting, there's carbon costs from picking up old bottles, from the hot water needed to clean the old ones, the cost of the water itself, and of the detergents that then go out into the sewers.

Radio New Zealand reported on a pile of broken glass bottles in an abandoned quarry down in Southland. It looks like Invercargill does not have a great sorting facility, so Auckland's glass recycler doesn't want the product.
The director of Invercargill's recycling contracter, Southland DisAbility Enterprises, Ian Beker says even if OI would take the glass in Southland, the cost of freighting it there is not economic. He told New Zealand Geographic that the best thing Southlanders could do is put their bottles into the general rubbish bound for the landfill.
This prompted some twitterings about how New Zealand needs to move to a deposit scheme like the one I grew up with in Canada. But that's really unlikely to be a good idea.

First, we have beautiful diversity in packaging styles. Tuatara won awards for its lizard-themed bottles. Some brewers use a standard bottle, but lots of the bigger ones have their own custom bottles. That means that a deposit scheme would have to sort the bottles before they could be returned to their homes. The costs would not be low. Different shapes and sizes would mean a harder job cleaning them all properly. Further, you'd have to store small-volume niche bottles until you'd accumulated enough to send back to the brewer.

Second, any brewer who wants to run his own deposit scheme can do so. Some of the craft brewers with more expensive glass did so in Christchurch, but I've lost track of the state of play on that one.

If it is more expensive to clean and reuse a bottle than to press new bottles, we waste resources in recycling them. And I can't see any plausible externality story around it. Landfill operators have to buy land in competitive markets; if old quarries were more valuable as something else, somebody else would have bought it instead. Councils typically charge for rubbish collection. If they have the marginal cost of rubbish collection wrong, that's a bigger issue than just glass bottles. But think about it more carefully: glass is about the safest, easiest thing in the world to put in a landfill. It doesn't leach or leak. Nothing dangerous. No smells and nothing to blow away in a stiff breeze to inconvenience neighbours. It won't emit methane while decomposing. It eventually will turn into coloured sand.

It would be very easy to waste a pile of resources by requiring Invercargill to upgrade its facilities, just because some folks don't like the idea of that there is an old quarry full of old glass.

There's no shortage of land in New Zealand that can be used for storing old glass. If there ever were, the price of it would bid up, the cost of dumping would increase, and things that today aren't worth recycling would be. When I lectured on environmental economics as part of my current policy issues course at Canterbury, I'd figured that if Christchurch went through a Kate Valley sized landfill every year instead of every thirty, and if they were built on prime dairy land instead of scrub wasteland, it would still only cost about $2 per person per year in land costs for landfill.

Bottom line:

  • Landfills should charge tip fees that reflect the cost of building, maintaining and running them. There can be reason for undercharging to reduce littering, but the resulting mild subsidy to landfill will be general across all waste streams, not specific to glass, and glass is one of the less harmful things to have in landfills.
  • If it is cheaper to dispose of a glass bottle in a landfill than it is to clean it and return it to the bottler, or to use it as feedstock in making new bottles, that typically means we would be wasting real resources if we forced it to be recycled. Since transport costs matter and since small centres can't afford expensive sorting facilities, it can make perfect sense for some places to recycle glass and others to use landfill.

Previously:

Posted by Eric Crampton at 11:28:00 2 comments
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Saturday, 25 July 2015

Prohibition's horrible tradeoffs

You grow pot in an illegal market; your toddler daughter eats a lot of it. If you take her to the emergency room, you'll likely be arrested. If you don't, very bad things could happen.

I applaud Shain Iperen for finally making the right choice.

But we should condemn prohibitionist approaches for making that a hard decision.
A drug expert has called on Northlanders to keep all drugs out of children's reach after an 11-month-old girl became seriously ill from eating cannabis her drug-dealing father left in the kitchen.

The father, Shain Iperen, was a drug dealer who only sought medical help for the girl 24 hours after she ate the dope, but initially denied any exposure by the child to drugs when questioned by doctors.

The 27-year-old only admitted what happened to her after toxicology results at Whangarei Hospital showed an extremely high level - at the upper most limit - of screening undertaken for tetrahydrocannabinol (THC, the active ingredient in cannabis) present in her urine.

The toddler was semi-comatose, unresponsive to voice, and only responsive to stimuli by movement of her limbs when brought to the hospital on February 27.

Iperen pleaded guilty in Whangarei District Court to two charges of dealing with cannabis oil, one of ill-treatment of a child, and a representative charge of manufacturing cannabis oil.
In how many US states must marijuana be legalised before New Zealand finally figures out that the UN convention is a bit less binding that it's thought?
Posted by Eric Crampton at 07:00:00 3 comments
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Friday, 24 July 2015

In praise of academic paternalism

I've used this week's New Zealand Initiative column at The NBR, in part, to pay a little tribute to Seamus, whose funeral is today. 

I start out in The NBR piece by critiquing the ever-trendy push to abandon the standard economic curriculum in favour of critical theory. 

Unfortunately, at least some higher-ups in NZ academia think it a grand idea. One might suspect that social pressure among some of their colleagues makes having market-friendly economists around somewhat embarrassing for them. 

But there's also a sense that it might boost student numbers if we catered to students' innate preferences rather than trying to provide an education. Customer choice is important, but we abandon what it means to be an academic department if we drop core theory in favour of the flash-trendy feel-good. Paternalism is needed in academia because the students don't know what they need until they've studied it. It's the academics' job to keep abreast of what's important and to make sure that students are getting the training they need, regardless of what they think they want when they start the degree. If they want a degree in mush-headedness, there are plenty of other departments willing to provide certification in it. 

And from there, I talked about Seamus's contribution:
For the eleven years I taught in Canterbury’s economics department, we provided what I think was the country’s best technical training in microeconomics. That was due, in no small part, to my good friend, and then-colleague, Associate Professor Seamus Hogan.
Seamus died last Friday, aged 53, of a brain aneurysm.
Seamus trained a generation of Canterbury economists. His intermediate-level course in microeconomic theory gave every student the technical background they would need to understand either mainstream problems or those coming from the fringes. His honours-level capstone course built on those foundations to show students the cases in which the standard model worked, the cases in which it didn’t, and the ethical presuppositions of different frameworks. In highlighting just what was meant by an efficiency norm, it was deeply critical of parts of the mainstream consensus. But it simply could not be done without the technical and mathematical apparatus established earlier on.
To put it tritely, you can’t think outside of the box unless you understand the box very well indeed. Sure, you can stand on the fringes and yell about the evils of neoliberalism, as many of those re-tweeting Parker’s article like to do, but your critique will be as empty as Jenny McCarthy’s condemnation of vaccines. Seamus taught his students to build the boxes and then twirl them on their index fingers.
Seamus’s students knew how lucky they were to have received proper training in economics with him, rather than a Post-Autistic-styled curriculum. A memorial webpage is already filled with their tributes. One of his students, who spent time at the Reserve Bank before heading off for a doctorate at Berkeley, rightly identified him as the “key factor in making Canterbury economics graduates so well represented in Wellington.” Seamus set and maintained the rigorous academic culture in the department that would not compromise the quality of the teaching programme and that would not pander to trendy, but ultimately fruitless, critiques of the mainstream.
Being able to understand the standard framework matters because so much is built upon it. 
...
Earthquakes brought budget cuts. Scepticism of the value of rigorous theoretical approaches relative to Manchester-style critiques meant the end of Seamus’s courses, despite their popularity. Seamus died six months after moving his family to Wellington, where he had joined Victoria University’s School of Government.
Academia needs a little paternalism. The tributes of those who have gone through the courses should count for more than the whims of those who do not yet know better, and now will not get the chance to.
I'm back in Christchurch for the day serving as pall-bearer and will say a few words in memorial at the service.

Some in the Department at Canterbury have set up a GiveALittle page accepting donations towards the continuing education of the Hogan kids. I'd be surprised if Seamus hadn't adequate life insurance, as he was one of the most ridiculously conscientious people I've known, but if it feels good to help a little, hit the link. I've suggested that it be put towards continued musical tuition. It mattered a lot to Seamus, and they've lost their main tutor.

The bigger issues around what Economics departments now can and should offer are, for me, under a Somebody Else's Problem field. But I don't envy my former colleagues their task: I think they're now at a staffing complement of 8.5, including two teaching fellows, where before the earthquakes we were 19.6.
Posted by Eric Crampton at 09:00:00 3 comments
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Thursday, 23 July 2015

LVRs and the Very Serious People

The Very Serious People understand the political constraints under which policy operates. They often overestimate the bindingness of those constraints, but the rest of us underestimate them. Here's Tyler:
I think of it this way: the People are Very Serious if they realize that common sense morality must, to a considerable extent, rule politics. At least if voters are watching.

So what is common sense morality in this context? It embodies a number of propositions, including, for instance (with cultural variants across nations):
  1. Political decisions should be based on what people and institutions deserve, based on their prior conduct and also on their contributions to the general good.
  2. Economic nationalism.
  3. Traditional morality, based on respect for authority, repayment of debts, savings, and hard work.
  4. Inflation is bad, in part because it violates #1 and #3, and in the case of the eurozone it often violates #2 as well.
  5. “I don’t care what you all say, the government should be able to find some way of arranging things so that I don’t have to suffer too badly from this.”
Now here’s the thing: common sense morality very often is wrong, or when it is right that is often with qualifications.
Therefore at the margin there is almost always a way to improve on what the Very Serious People are pushing for. The Very Serious People realize this themselves, though not usually to the full extent, because they have been cognitively captured by their situations. They see themselves as “a wee bit off due to political constraints,” instead of “a fair amount off due to political constraints.” So there is usually some quite justified criticism of the Very Serious People. Common sense morality is needed at some level, but still at the margin we wish to deviate from it.
Indeed. Now let's think about LVR policy. The first round could only ever take the edge off of the housing price run-up; the second round was targeted at investors when the main risk to financial stability came from owner-occupiers and when there was no evidence of risk to financial stability. As Mike Reddell continues to point out, and as we've argued here before, it is really really hard to come up with a coherent justification for the LVR policy as it was implemented or sold. Seriously - go read the stuff from Harrison that Reddell is citing. See also the NBR here.

The people inside RBNZ are not idiots. A lot of them know that the public justifications for this stuff are nonsensical.

What worse thing might they have been trying to forestall with the LVR policy? Being seen to be doing something slightly useless and minorly harmful can be a lot better than being forced to do something very costly.
Posted by Eric Crampton at 14:00:00 0 comments
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Crisitunity revisited

Who's got two thumbs and got 'crisitunity' into a Herald headline? This guy here.


I there expanded on the arguments I'd made at the Initiative's blog: if there is any big flood of foreign money that wants to be involved in Auckland housing, it is ridiculous that we make it near impossible for that money to build new housing. 

Many thanks to the Herald for publishing it - and for highlighting one of my favourite Simpsons' words. 

The article's not yet on the Herald website, but it's available via PressReader.

Update: Herald version here.
Posted by Eric Crampton at 09:07:00 1 comments
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Wednesday, 22 July 2015

A missing insurance market

I wonder if I'd be the only customer for this one.

Imagine a bolt-on to your existing home-owners' insurance. It specifies that, in the event of a substantial earthquake,* the insurance company immediately buys your house from you for a pre-specified price. No inspections, no claims adjustment, nothing. Big enough quake, they own your house as-is where-is. Maybe you could set it as an option for the policy holder, maybe you could set it as an automatic thing. Take the option, and you have a big deposit in your account to let you start over somewhere else. The insurance company then has, say, six months after the roads to your house are passable by truck and the port or roads out of town are open to get the contents packed into shipping containers and delivered to the nearest functioning port facility.

Advantages for the insurer:
  • No messing around with finicky owners. The insurer runs the repairs that they think are necessary to on-sell the house afterwards with no hassles. The timing of repairs is entirely up to them. They can contract with larger scale firms to run rebuilds over larger parcels if they want too. Owners are often picky about who they want as builders (we were!). The insurer owning the house has no worries about whether an owner is trying to fix things to as-new or whether he's trying to correct pre-existing damage.
  • The insurance on-sold home would be a sure-thing for future policies: everyone would know that it was fixed to insurer standards, so there would be no issues about the house's future insurability. 
  • Instead of a bunch of fragmented owners arguing over things like red-zoning, with flow-on consequence for the insurer, the insurer gets to have those conversations with the government. 
Advantages for the insured:
  • A certain fast payout for anybody who wants to flee. No hassles, no arguments, no waiting, no living in limbo. 
This seems an easy product to provide. I bet there'd be a lot of takers - or at least anyone who's experienced Christchurch would give it a good look.

I would want a clause in there that this part of the insurance contract - either terms or premiums - cannot be changed by the insurer except with two-years' notice: you wouldn't want foreshocks leading to policy cancellation.

* This would have to be legally defined, but anything Christchurch 2011 scale upwards: substantial parts of downtown ruined, town a nightmare, services shut down for weeks... you know the drill.
Posted by Eric Crampton at 10:04:00 8 comments
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Tuesday, 21 July 2015

Local government

I like the idea of strengthening local government. There should be better links between Council performance and Council revenues, to both encourage and facilitate local economic growth. And central government should have an open door should local bodies wish some regulatory abatement to help them achieve growth.


Palmerston North wants central government to ban smoking outside of cafes, restaurants and bars; they also wanted central government to put a compulsory levy on plastic bags. Both proposals earned strong favour among LGNZ delegates. 

If your starting impression of local government were that they weren't particularly competent and tended to focus on silly things instead of core infrastructure, and that they'd waste any new money directed towards them, well, I'm not sure this would change views for the better. 

Next was a proposal that central government subsidise council waterworks. There could be merit to it if costly projects are sometimes due to central government regulatory mandates rather than something wanted by the local community, but without that link, well, I'd like other people to pay for my stuff too.

The last one reported by Chris Hutching at the NBR is that local authorities should be able to charge rates against Crown-owned properties. This one should be taken seriously. Crown-owned land can be a sizeable chunk of some communities' ratings base, loading more costs onto other ratepayers. But I'd love to see it tweaked, just a little. Make it a trade. Councils get to apply rates to Crown-owned land in their area. But, at the same time, they have to assess Council-owned properties, apply the same rates to them, and remit those rates to Central government.

Both local bodies and central government own a pile of poorly used land. Having to pay each other rates on them could encourage better land use. And we then might not have quite so many surface parking lots where a parkade under an office tower might be a better use of the land. You could tweak it to exempt so many square meters per resident if you wanted to not penalise places for having a few parks. At the margin, keeping high value land in low value uses should be discouraged.
Posted by Eric Crampton at 12:33:00 0 comments
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Hogan memorial

Seamus's funeral is scheduled for 2 PM on Friday, 24 July, at Harewood Crematorium, at the corner of Johns and Wilkinsons Roads, Christchurch.

His family are collecting memorial notes at the funeral home's website. If you'd commented here, please copy it there.
Posted by Eric Crampton at 11:12:00 0 comments
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Saturday, 18 July 2015

Seamus Hogan

Seamus Hogan died Friday of a brain aneurysm. He is survived by his wife Sarah, and their three children.

I met Seamus in 2003 when I joined the Economics Department at Canterbury. He was the best colleague anybody could ever hope to have: the kind that makes everybody else smarter and more productive. He set the Department's culture; he was Canterbury's Aaron Director.

Everybody knew that he was the one to go to if you had a problem in a theory paper that needed sorting out. Some folks get theory and have no intuition. Others have intuition but suck at maths (me). Seamus mastered both, and that's more rare than it should be. He was generous with his time, and pulled far more than his fair share of Departmental service - the master of the Departmental and university lore.

Seamus was this year elected President of the New Zealand Association of Economists.

Seamus taught just about every one of Canterbury's serious graduates in economics for well over a decade. He was the best lecturer I have ever seen perform. There was no finer preparation for being an economist, anywhere in New Zealand, than Seamus's microeconomic theory with a capstone of his graduate course in welfare economics. Our students knew it too. His course was not compulsory at Honours, but it was rare that less than 90% of the Honours cohort would sit it.

I see his, and our, students everywhere in Wellington.

If you've read him here, you know him. He'd just had his sixth anniversary as co-blogger.

There'll be more to come here in a few days. This is going to leave a pretty large hole in New Zealand's economics community. And a bigger one for his family.
Posted by Eric Crampton at 17:48:00 8 comments
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Friday, 17 July 2015

Gender Identity Stats

Statistics New Zealand looks to be first in the world to start collecting statistics on individuals' gender identity. And they're taking an eminently sensible approach to it. 

If you only asked people with which gender they identified, you would mess up a pile of clinical applications where a standard diagnostic flowchart will depend on biological sex. You don't suspect prostate cancer for a bundle of symptoms if the person presents as a woman, but you might if she was born male.

From the FAQ:
How will asking for gender identity information affect me? 
You may notice in the future that some government forms will ask for your sex and others will ask what gender you identify as. Other forms may ask you both. A question about gender identity will only be included when there is a clearly defined need for the information to be collected. 
Why would some forms ask for sex and others gender identity? 
In some situations knowing someone’s sex as recorded at birth is important. For example, in clinical situations when various medications react differently to each sex; or to calculate population growth. In other situations, knowing someone’s gender identity is important to ensure adequate services are provided, and that the individual is addressed correctly. Other times, both types of data may be required.
What are the categories?

Classification of gender identity

The standard classification of gender identity is a hierarchical classification of two levels. Level 1 of the classification has three categories. Level 2 has six categories.

Classification of gender identity

  1. Male
    11   Male / Tāne
  2. Female
    21   Female / Wahine
  3. Gender diverse
    30   Gender diverse not further defined / Ira tāngata kōwhiri kore
    31   Transgender male to female / Whakawahine
    32   Transgender female to male / Tangata ira tāne
    39    Gender diverse not elsewhere classified / Ira tāngata kōwhiri kore
Longitudinal work in 10 years will be interesting: predicting transitions across categories, identifying effects of those transitions conditional on the factors predicting transition...

Update: In case you wondered, here's the Encyclopedia of New Zealand on gender diversity in Polynesian cultures.
Posted by Eric Crampton at 11:33:00 2 comments
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Tuesday, 14 July 2015

In praise of plastic

The Dom Post wants to tax plastic bags. In doing so, they advance what has to be among the sillier counter-arguments to a study.

The Dom writes:
Just why does a small levy, of perhaps five or 10 cents a bag, typically have such a big effect on behaviour? A study by Argentinian researchers in 2012 found that one group of shoppers disliked the new levy but started using their own bags because of the cost. But another group of shoppers supported the charge for environmental reasons. The new charge forced customers to think again about their behaviour. It was a nudge to change their usual habits.
The plastic bag advocates have one surprising argument: using your own bags repeatedly can kill you. A 2012 study by George Mason University found that the switch to reusable bags was killing about five people a year in San Francisco, because their bags were left unclean and grew germs. Keeping meat and vegetables in the same bag is part of the problem. And leaving bags for long periods in the car boot provides a hothouse for bacteria.
The answer, of course, is to clean your shopping bags. There is a similarly short reply to those who say the levies are regressive, bearing more heavily on the poor. Low-income shoppers, like the rich, should switch to reusable bags.
San Francisco has about a million people across the greater region; scale it up five times over to get comparable New Zealand figures. Then recall that San Fran is one of the richest, trendiest, most health-conscious places in the world. If anywhere is going to be a lower bound for deaths caused by failing to clean mandatory reusable bags, it's San Fran.

If the George Mason study is credible, which it will be since Jon Klick is one of the authors, then 20 deaths a year would likely be a lower bound for a complete ban on plastic bags. A tax will have less effect because it's less likely to change behaviour.

So then. Tally up all the costs imposed on the environment by the existence of plastic bags in New Zealand. If those are less than the costs of 20 human deaths per year (at about $4 million each by usual cost-benefit rules here), then leave it alone. Seem likely that NZ plastic bags are costing the world $80 million a year?

I'm not a low-income shopper. But I totally use plastic bags. And then I re-use them as kitchen trashbags. I'd ignore the tax because I don't care whether I add a buck to my shopping trip or not, and because I hate cleaning re-usable bags. Poorer folks might have to flip to using the re-usable ones. And they might not have the time to do the cleaning that prevents the dying.

"If they don't like paying the tax for the plastic bag, let them use re-usable bags and wash them thoroughly". Appropriate on Bastille Day.
Posted by Eric Crampton at 13:36:00 6 comments
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Floods for housing

If Labour is right that a flood of Chinese capital is driving up Auckland house prices, this could wind up being the single biggest wasted opportunity New Zealand has had over the past... well, since I've been here.

If Auckland zoning were sane, all of that capital could be helping to build new subdivisions, new apartment buildings, new townhouses, new mid-rises - new housing. There would likely be less of that capital, as expected price increases would be lower, but the capital would be giving us new housing.

Instead, it's bidding up house prices. That's not a particular problem, but big price fluctuations that could come from it are a bigger problem than having too much housing built. In the worst case, if the capital were directed to new building and then the flood dried up, the cost of housing would fall - there would be more housing available at lower cost. Just imagine: Auckland would have low rents and a low cost of living with plentiful housing. If "oh nos! They built too much housing with their own money and they lost a pile of their money and now we get to live cheaply!" is somehow a worst case.

What would it take to fix it? Open up zoning to allow new building under very rapid consenting - again, both up and out. To get substantial new greenfield development in the suburbs, you'll have to ease up on the Overseas Investment Act at the same time so foreign investors can buy tracts of land to put up housing.

Bit depressing that the knee-jerk reaction is to put controls on foreign investment here rather than to fix the darned rules that prevent its being used more productively.
Posted by Eric Crampton at 10:27:00 1 comments
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Self-inflicted wounds

If the New Zealand government stopped pulling nonsense like this, maybe, just maybe, it wouldn't have to have so many hand-wringing sessions where Wellington bureaucrats agonise over how the economy isn't diversified enough and how there needs to be more digital uptake and how the regions are suffering.
High-profile gaming developer Dean Hall was shaking hands with the CEO of Microsoft, just as Immigration New Zealand contacted his company asking if it was financially viable.

The creator of DayZ, a zombie survival game that has sold more than 3 million copies and made more than $137.7m, had been planning a $20m gaming studio in Dunedin.
DayZ is huge.
After months of wrangling with Immigration NZ, Hall may now base that business offshore.

The department recommended he pay migrant software developers around $60,000, which he argued was way above what the industry was paying in New Zealand.
So Immigration NZ is setting salaries?
Even if Immigration NZ backtracked on its stance, it may have come too late for Hall.

"I'm still hopeful that in the future I can make my dreams of a Dunedin mecca for graduates – of all countries – come true. But I suspect without a serious change in government attitudes I'll pass."

In comparison, the United Kingdom had been proactive in trying to get his company Rocketwerks to be based in London.

"[The UK Government] is pulling out all stops to attract video game companies because of the tremendous opportunity the industry provides."
But here in NZ?
To overcome obstacles, such as chronic labour shortages, he was hoping to supplement New Zealand graduates with overseas graduates.

However, after receiving support from Work and Income, which noted the difficulty in finding local candidates, the search for international candidates reached a stumbling block when Immigration NZ rejected an application because they did not feel a job offer to one of those graduates was genuine.

Hall described the "surreal moment" when attending a Microsoft press conference following the announcement of his new project, ION.

He had just shaken hands with the Microsoft CEO when his company received an email from Immigration New Zealand asking whether his company was financially viable.

"In the end, I got so desperate I asked the bank to provide Immigration with details of all my accounts and the money available to me locally. I felt this was outrageous but by that time we had really run out of options."
So Immigration NZ is blocking a tech company's plan to bring IT workers, not to Auckland where housing is short, but to Dunedin. Read the whole thing and weep.

A relevant twitter conversation from last week:
Posted by Eric Crampton at 07:00:00 6 comments
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Monday, 13 July 2015

Illegal kitchens

Sounds like Christchurch Council hasn't entirely eased up on secondary units.

Loyal readers will recall that Christchurch Council worsened the post-quake housing crisis by maintaining its strict line against secondary units in houses.

Here in Wellington, many houses sell as "home and income", with a separate flat with its own entrance and kitchen. In Christchurch, those were generally banned except where special permission was given for a granny flat to accommodate a family member.

After the earthquakes, CERA eventually changed the rules so that if you could demonstrate that your secondary unit would accommodate someone displaced by the earthquakes (and not a rebuild worker who moved to Christchurch from elsewhere, or a student), then you could have a secondary suite but only for a limited time.

Since then, Christchurch Council eased up a bit. Existing family flats could be converted to general occupancy - basically, removing the requirement that the family flat be occupied by a family member.

I had thought that Council was to be easing up more generally. Or, at least that was the state of play in November 2013, when last I'd checked. But then this showed up in my inbox this weekend:
[Redacted for the time being]*
I edited the above only for formatting.

Maybe there's just something wrong in the project company's consent applications. Maybe they're being required to run the cooker from a gas bottle outside the house rather than from a small in-house cylinder - which are no longer allowed.

But it sounds like Council still isn't making things easy for folks who want to provide the kind of affordable housing that Michael needs. Paul McMahon provides a pointer:
The Council documents there provide discussion of lower development contributions for small flats. If they're still not really allowing many small secondary units, though, it's a bit academic.

If there's anybody in Christchurch able to help Michael out, please let him know in comments below.

* Update: the email above is now redacted. Thanks to some help from a reader, there may be a workaround for my correspondent's problem. But he prefers that it be redacted while that's sorted. Would that a more general solution to the issue could be found.
Posted by Eric Crampton at 11:24:00 0 comments
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Friday, 10 July 2015

New drink driving limit, same old stats

Olivia Wannan reports on the latest drink driving fatality statistics:
The law changed on December 1, cutting the limit from 80 milligrams of alcohol per 100 millilitres of blood to 50mg, and from 400 micrograms of alcohol per litreof breath to 250mcg.

In 2010, the Ministry of Transport estimated a lower limit might save up to 30 lives a year, though it later re-evaluated the figures and reduced the estimate to three a year.

In the first half-year since the law change, there were 33 alcohol-related deaths, and eight in which alcohol was suspected but not confirmed as a factor, making a total of 41.

In the same period a year earlier, the total was 35, figures released under the Official Information Act show.

Since January, 166 people have died on the roads, up by 12 from the same time last year.

Superintendent Steve Greally, national road policing manager, said he would be disappointed if ultimately the new drink-drive limit had no effect on road deaths.
There was about a 12% increase in drink-related fatalities where non-drink fatalities was up by about 5% - about the opposite of what you should have expected if you thought the change would save a lot of lives.

Still, with low frequency things like this, you can get a lot of noise - and especially in looking at numbers of fatalities rather than numbers of accidents. If a couple of accidents this year involved cars with more passengers than last year, you could have had a decline in the number of crashes despite the rise in the number of fatalities - we don't know yet.

This is more encouraging though:
Superintendent Steve Greally, national road policing manager, said he would be disappointed if ultimately the new drink-drive limit had no effect on road deaths.

However, one positive was that the number of people detected over the old alcohol limit had dropped by 17 per cent in the first four months. "We haven't seen the same ... in terms of fatal crashes at this point, but it is early in the piece ... It does take time for some people to learn what the lower levels mean for them.
Whether the policy winds up doing any good will hinge on whether it brings down drinking at the heavier ranges. Again, drinking in the .05-.08 range really isn't that risky in the grand scheme of things. But if somebody plans to drive home, gets to .06, then makes a pile of bad decisions taking him to .12 -- might be affected by a .05 limit. It's still really too early to tell though:
An industry report released this week showed the law change had resulted in reduced spending at bars and restaurants. Robertson hoped that, against that background, the Government would evaluate whether the policy was effective.

New Zealand Initiative economist Eric Crampton said the number of fatal crashes involving alcohol had declined by about six a year over the past three decades. But factors including traffic levels, weather and chance resulted in a lot of variability, or "noise", in year-on-year data, and even more so in a period of only six months.

"If the reduction in the drink-driving limit had a really, really big real effect, we would be able to tell that quickly. If it only had a small real effect, it would take longer to pull that effect out of noisy data."

Ministry of Transport land transport safety manager Leo Mortimer said it would wait until it had three years of data before making a call on the success or failure of the law change. "Looking at the overall impact the changes have had will be a longer-term evaluation."
And if it does wind up having had a small real effect, it still needs to be weighed up in a proper cost-benefit assessment to see whether it outweighs the harms done by the policy - like reduced hospitality.
Posted by Eric Crampton at 09:44:00 6 comments
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Some sense on vaping

Here's public health Associate Professor Marewa Glover:
There are now more ex-smoking vapers helping smokers to quit than there are paid smoking cessation practitioners. Meanwhile, Government-paid smoking cessation workers peddle their patches and gum, sprays and meds, and insist upon smokers attending group therapy.
If the Government and public health advocates stuck to a precautionary approach we could almost forgive them, but the market is changing at such a rapid rate that there is a real risk the Government and advocates get trapped in the past and become blinkered to the future.
It annoys me that the disparity between Māori and Pākehā smoking rates will widen since Māori will be less likely to access nicotine via the internet – the predominant medium for accessing these new products.
But, at least we still have time to debate the role of nicotine in our society. Are we really going to get all puritanical about people using nicotine if it’s in a form that is no more harmful than their coffee addiction?
Didn’t we do all this smokefree campaigning to reduce disease and early deaths?
Perhaps it’s time for public health to stand aside and let smokers help themselves now that there is something better than smoking that they can switch to.
 Emphasis added. Endorsed, obviously.
Posted by Eric Crampton at 07:00:00 0 comments
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Thursday, 9 July 2015

Pay donors?

I chatted yesterday with Sean Plunkett at RadioLive about compensation for live organ donors. My former student Liz Prasad showed that paying donors would save lives, improve quality of life among transplant recipients, and save the public health system rather a lot of money.

National's Chris Bishop has a Member's Bill that's been drawn from the ballot that would increase compensation to live donors. If anything, I'd say his Bill could go even farther. In particular, the Israelis have done well by ensuring that live organ donors have priority access to organs should they ever need one. We could do that here as well, and provide a bit of added security for those giving that gift.

The audio of the interview is here.
Posted by Eric Crampton at 10:37:00 0 comments
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Wednesday, 8 July 2015

Drinking in Pregnancy: The NZ stats

The Science Media Centre points to some new statistics on drinking during pregnancy. Given the alarming figures they highlighted, I was surprised to see that the actual data looked pretty good.

Here goes.

First, the highlights from Science Media Centre:
The analysis indicated a high prevalence of drinking, including binge drinking, among mums to be. The prevalence of drinking alcohol ranged from 20% to 80% in Ireland, and from 40% to 80% in the UK, Australia, and New Zealand.
Across all countries, factors associated with alcohol use included smoking during pregnancy and Caucasian ethnicity.
“Our data suggest that alcohol use during pregnancy is prevalent and socially pervasive in the UK, Ireland, New Zealand and Australia”, conclude the authors.
Wow. Sounds pretty terrible. But here's the paper. Table 4 has the main results.


That's hard to read, and I'm sorry. What does it show? I've transcribed the NZ column into this chart; I hope I haven't introduced any transcription errors.


The y-axis has the number of women in each category. The number of women reporting non-drinking increases substantially from pre-pregnancy (the blue bar) to first trimester (orange) and again to second trimester (grey). They do not have separate data for third trimester. 

During first trimester, the main risk from heavy drinking is miscarriage. After that, heavy drinking can yield foetal alcohol syndrome. But there's no evidence that 1-2 per week does harm.

What do we see? In the first trimester, 35% of women consume more than 1-2 units per week. Those women are at increased risk of miscarriage. 12% drink over one unit per day on average.

In the second trimester, 220 of 2006 women, just over 10%, report consuming 1-2 drinks per week. There is no evidence of harms from that level of drinking. 7 women report consuming 3-7 drinks per week - which is still within the safe range. No women report drinking more than that on average and two of 2006 report ever having binged during the second trimester. 

Binging during the second trimester is a pretty bad idea. But it is 0.1% of those surveyed, or 0.35% if you want to include everybody reporting in the 3-7 per week range. 

Expect scary newspaper headlines tomorrow accompanied by pleading calls for action. But remember that the rate you should care most, if foetal alcohol syndrome is your main concern, about is 0.1%. About 35% of women are at increased risk of miscarriage. Both are well below the highlighted 40-80%. 

Read Emily Oster's summary on drinking and pregnancy.
I reviewed many, many studies, but I focused in on ones that compare women who drank lightly or occasionally during pregnancy to those who abstained. The best of these studies are ones that separate women into several groups—for example: no alcohol, a few drinks a week, one drink a day, more than one drink a day—and that limit the focus to women who say they never had a binge drinking episode. With these parameters, we can really hone in on the question of interest: What is the impact of having an occasional drink, assuming that you never overdo it?
I summarize two studies in detail in my book: one looking at alcohol consumption by pregnant women and behavior problems for the resulting children up to age 14 and one looking at alcohol in pregnancy and test performance at age 14.  Both show no difference between the children of women who abstain and those who drink up to a drink a day. I summarize two others in less detail: one looking at IQ scores at age 8 and a more recent one looking at IQ scores at age 5. These also demonstrate no impact of light drinking on test scores.
I argue that based on this data, many women may feel comfortable with an occasional glass of wine—even up to one a day—in later trimesters. (More caution in the first trimester—no more than two drinks a week—because of some evidence of miscarriage risk.)
Her book on pregnancy is excellent - if you want actual evidence rather than scaremongering.

Previously:
Posted by Eric Crampton at 13:25:00 6 comments
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