iPredict and the reign of the Vogons

The NBR asked me for comment on the iPredict decision. Here's what I sent through; much of it showed up in Campbell Gibson's piece.

In the Hitchhiker’s Guide to the Galaxy, only one species had the bureaucratic bloodymindedness necessary for seeing things through, no matter how stupid it was to apply the rules in particular cases, or how horrible the consequences: the Vogons.

iPredict is one of New Zealand’s beautiful things. Established at the University of Victoria at Wellington shortly before the 2008 election, it allows real-money trading on political event futures. If you wanted to know the odds that National would win the next election, that Winston Peters would be in the next coalition, or that Wellington might amalgamate, iPredict was the place to go. If you thought the prices were wrong, you could put your dollar vote in and turn a profit by adding your information into the mix.

While other countries never really managed to get these right, New Zealand’s pragmatism saw us through. The Gazetted iPredict regulation let the tiny non-profit operate under rules that were fit for purpose. In America, an unholy coalition of casino gambling interests and anti-gambling Senators worked to ensure that Americans couldn’t easily trade real-money contracts on political events. New Zealand knew better. I considered it an important part of our “Outside of the Asylum” status. While regulations in the rest of the world were dumb enough to prevent beautiful things, New Zealand knew better.

And oh but it was beautiful. Its prices were the best fair-odds around on political events. There was never a ton of money in it – the volume was too low. But because enough politics insiders enjoyed it for its own sake, the listed prices were sharp. At Canterbury, I had fun setting Honours projects based on its data.

New Zealand yesterday took a sharp jump out of the Outside of the Asylum when Simon Bridges decided that a tiny shoestring-budget outfit like iPredict had to comply with anti-money laundering regs that even the big banks found a really tough slog. I don’t know how much he tried to ease things in recognition of iPredict’s smaller scale, but regulatory costs that seem small to a Minister can be impossible for an outfit that was always on the edge of financial viability. And as for the odds that it could have been used for any kind of money laundering? Well, I'd have been shorting the relevant contract even at 5% odds.

In short, the decision is regulatory murder: Vogons crushing beautiful jewelled crabs, just because. I hope the decision can be rescinded.

I visited similar themes in a piece I wrote for the Dominion Post.

That all ended yesterday. On advice from the Ministry of Justice that it was possible that somebody might some day decide to launder money through iPredict, Simon Bridges killed it. iPredict always ran on the smell of an oily rag, subsidised by Victoria University at Wellington. It would never have been able to afford big-bank style Anti-Money Laundering regulations – or even slightly toned down versions. While Ministers and Ministries can glibly reckon that regulatory compliance costs won't be too high, banks have found the anti-money laundering regulations to be incredibly costly. iPredict did not stand a chance.

When iPredict was established, they deemed the money laundering risk so low that there would not be regulatory compliance issues unless either the Americans invaded, or communists were elected. They did not count on the current National government.

The Government has killed a thing of beauty to guard against a risk that would have been implausible as movie scenario. In doing so, they've ruined our best, and one of the world's best, sources of accurate information on the chances of events happening. Colleagues who attended the British High Commission's election night party for the UK election reported that they had iPredict up on the big screen as a way of keeping track of who was winning.

Simon Bridges's decision is incredibly disappointing. I hope he reconsiders it. And, perhaps, it is time to rethink the anti-money laundering regulations as a whole.

I know that the Americans have forced us into the AML regime under threat to basically make financial transactions impossible with American firms. But only Vogon bloody-mindedness can explain hitting iPredict as part of it.

And here's Scott Sumner lamenting what we've lost.

I doubt either the Ministry of Justice or Bridges knew, or cared, about what they were destroying.

When John Key gets around to forcing a referendum on changing the National Anthem, one of the four five options should be "Oh Freddled Gruntbuggly", set to an appropriate tune.

Manitoba envy

Despite massive need for flat-pack furniture following the earthquake, Christchurch didn't manage to get an Ikea.* And there's yet no Ikea anywhere in New Zealand.

Last month, Christchurch people got mad that a Wendy's wanted to serve beer.

Meanwhile, Winnipeg's Ikea serves beer and wine.

* Trading on the iPredict market on whether there would be a Christchurch Ikea went as high as 18%. But Simon Bridges said we can't have iPredict any more, so I suppose there can't be a contract on whether we'll ever get an Ikea. So we're as bad as Manitoba on the predictions-market front now.

Unless the Americans invade or we elect communists

Glenn Boyle, who helped set up iPredict, emails:

When we were setting iPredict up between 2005 and 2008, all the holdups were technological and financial, not regulatory.  Liam Mason and others at the Securities Commission were generally helpful and tried to eliminate roadblocks rather than put them in our way, and there certainly didn't seem to be any impediments thrown at us by ministers.

I recall the money laundering bogeyman coming up only once, and then only in jest.  I don't remember the exact wording, but it was something along the lines of "you'll probably get hit with money laundering charges if the Americans invade or we ever elect a communist government."  Ouch…

This wasn't taken seriously at the time though.  Looking back through all the various memos etc I prepared during the 3+ years iPredict was being set up, I can't find any reference to money laundering regulation at all.  I guess we were naive!

There seem to be more than a few people who reckon Lianne Dalziel did a far better job on this stuff under the prior Labour government than we've seen under National.

Inside The Asylum

I'd cited iPredict as an example of New Zealand's cherished "Outside of the Asylum" status. While other countries did stupid things banning socially useful prediction markets, either at behest of gambling interests or because of anti-gambling politicians, or the bootleggers-and-baptists combination of the two, New Zealand was sane.

Simon Bridges just killed iPredict. The because is potential money laundering. But that's just the proximate cause. The ultimate cause is absolute Vogon-scale bloody-minded bureaucratic idiocy. Applying bank-style money laundering regs to a tiny non-profit with minuscule financial turnover -and that was always a dubious proposition for the University in the first place - that could never do anything but kill the thing. And it takes absolute Vogon-level bloody-mindedness to do that.

Idealog has the best write-up on it.

Can somebody set "Oh Freddled Gruntbuggly" to music? We might need a new national anthem.

Police muzzles?

There's a strong academic freedom case against the kinds of restrictions that the New Zealand Police, and other government agencies, put on the use of data. But it's not quite as clear-cut as it might seem.

Jarrod Gilbert is New Zealand's leading expert in crime and gangs. Between him and  Greg Newbold, there's not much the Canterbury sociology team don't know about crime. Gilbert's having trouble getting access to police data on crime that he needs for his research, though, because his research has meant he's spent a lot of time with gangs.

This part seemed especially concerning:

The degree of control the police sought over research findings and publications was more than trifling. The research contracts demand that a draft report be provided to police. If the results are deemed to be "negative" then the police will seek to "improve its outcomes". Both the intent and the language would have impressed George Orwell.

Researchers unprepared to yield and make changes face a clause stating the police "retain the sole right to veto any findings from release". In other words, if an academic study said something the police didn't like - or heaven forbid was in any way critical of the police - then the police could stop it being published.

These demands were supported by threats. The contracts state that police will "blacklist" the researchers and "any organisations connected to the project ... from access to any further police resources" if they don't abide by police wishes.

I worried about this kind of thing in Ministry of Health RFPs a while back.

But we have to balance it too against the following kind of scenario. Suppose that you're a government agency who's contracted with some researchers to do some work for you. Somewhere along the way, things go off the rails. The researchers' drafts don't look good, the statistical analysis doesn't line up, and it's starting to look like they're trying to grind an axe rather than provide you with a down-the-line assessment of results.

Worse, they've started shopping around their working draft at conferences [legit!] and putting out press releases about their working draft [uh-oh], touting their initial results, using the Ministry's funding as imprimatur, and calling for policy change based on it. You know they've missed a pile of important stuff in their analysis and that the results really aren't sound. What do you do?

In an ideal world, academic freedom prevails. The researcher presents their results, but the Ministry puts out contextual information noting what the researchers have missed and why the results are only tentative and preliminary. But there's a lot of risk that's then come in. The opposition might have latched onto the preliminary work and called the government cowards for not having changed policy, or, worse, bought out by "Big Industry Interests". Or, even worse, the preliminary wrong results conform to the Minister's priors and the Minister won't even let you put out a contradictory note because they've already tasked you with formulating policy based on it.

I'm not saying muzzle clauses are justifiable, but rather that this can be where Ministries are coming from.

It is interesting, though, that the University of Canterbury in general is happy to sign contracts for government funding that put strong muzzles on its researchers. I suppose the presumption is that government contracts are always wonderful and that the restrictions are always for the best in this the best of all possible worlds. On the other side, it doesn't seem to matter how rock-solid the academic freedom provisions are in an external funding arrangement if industry's involved - somebody's going to object to it. Again, the one-sided scepticism problem.

Consenting and rocket science

Looks like Christchurch has lost its shot at a space-port.

Rocket Lab is moving its proposed launch facility from Birdlings Flat out to the Mahia Peninsula. They've cited slow Christchurch resource consenting as one of the reasons.

Auckland-based Rocket Lab said its decision was partly due to the time it was taking to get the necessary resource consent from Christchurch City Council.
When the company announced the Canterbury site, it said it was also considering moving its rocket manufacturing operation to Christchurch - creating up to 200 jobs.
It has now decided on a location on the Mahia Peninsula, for which it already has the necessary consents, as the site where it aims to launch rockets from 2017.

Does that make getting a consent harder than rocket science?*

As of June, they had over 30 launches booked.  

Beck said preparations were under way to submit resource consent applications to Christchurch City Council for the launch site.

The proposal has attracted concern about the potential impact on the environment from the Green Party.

Spokeswoman for conservation, Eugenie Sage said the Kaitorete Spit was a nationally significant ecosystem and natural landscape feature containing habitat for threatened lizards, rare invertebrates and threatened plants such as Muehlenbechia astonii .

"The launch activities potentially disturb wildlife."

Sage said local residents were concerned about the potential impact of a launch on access to conservation reserves and other public land during the launches.

Applications for three consents from Rocket Lab were lodged with Environment Canterbury on June 15.

I'd started getting worried when I'd seen these kinds of conditions a few months ago:

Rocket Lab was restricted to four test firings, lasting no more than 30 seconds and, when operational, would have to provide 10 days' notice before launches. It would be restricted to 12 launches a year.

They'd want to give plenty of notice due to the exclusion zone they'd have to run around a launch site. But 12 launches a year? And wouldn't they need a few options around any potential launch in case of weather issues?

I'm rather glad that if Christchurch couldn't see fit to give them clearance for lift-off, others could.

What does it say about Councils' incentives to get their consenting offices straightened out if they can manage to chase away a potential space port?

 * Jason Krupp takes credit for this quip.

Cinderella men

I think this is the first time I've seen evolutionary biology featured in a Press piece on crime. The piece notes the disproportionate number of children in New Zealand killed by step-fathers.

Why stepfathers kill their lovers' small children but spare their own has troubled Canadian evolutionary psychologist Martin Daly for decades.

He and his late wife Margo Wilson founded the Cinderella theory in the 1980s, researching the deaths of 700 Canadian children.

What they found suggested the unconditional love a parent feels for a screaming child who has soiled their nappy, is not innate for a stepparent - and makes them more likely to lash out.

... Building on Darwin's theory of evolution, the relationship between the new man on the scene and his lover's child is forged by biological altruism, Daly and Wilson found.

That means humans, like other animals, are programmed to investing their time into reproducing their own genes - not someone else's - and sometimes that resentment becomes deadly.

..."My argument, in psychology - and it's the same with those other animals who engage in step-parenting - is the step-parent is doing it as a courting step.

"People love their own children more than they love someone else's child. That's not to say they don't love them... [but] generally, they're not going to throw themselves in front of a truck for them."

In the Canadian research, birth parents overwhelmingly smothered or shot their children, and a third of fathers committed murder-suicide.

Stepfathers usually beat children to death and just 1 in 67 killed themselves too, Daly and Wilson found.

They note that the New Zealand data for a proper test would be hard to come by (as is all NZ data about everything because of because).

Satoshi Kanazawa explained it this way:

In retrospect, this makes perfect sense. Parental love for children is evolutionarily conditional on the children’s ability to increase the parents’ reproductive success. Stepchildren do not carry any of the genes of the stepparents, so there is absolutely no evolutionary reason for stepparents to love, care for and invest in their stepchildren. Worse yet, any resources invested in stepchildren take away from investment that the stepparents could make in their own genetic children. So, in the cold, heartless calculus of evolutionary logic, it makes perfect sense for the stepfather to kill his stepchildren, so that his mate (the mother of the stepchildren) will only invest in their joint children, children whom the stepfather has had with the mother and who carry his genes. Only they can increase the stepfather’s reproductive success.

But he also cites some contrary evidence from Sweden suggesting that the background characteristics of stepdads do a lot of the work.

In their paper, Temrin et al. do not question that stepchildren are more likely to be killed and maimed by their stepfathers; they only question discriminative parental solicitude as the explanation for it. They point out, and empirically demonstrate with a small Swedish sample, that men who become stepfathers, by marrying women who already have children from previous unions with other men, are more likely to be criminal and violent to begin with. And Temrin et al. argue that their greater tendency toward criminality and violence, not their genetic unrelatedness, is the reason they are more likely to kill and injure their stepchildren.

Once again, in retrospect, this makes perfect sense. Divorced women with children are on average older, so they have lower mate value than younger women without children. Given choice, and all else equal, all men would prefer to marry younger women without children rather than older women with children with other men. The logic of assortative mating would suggest that women with lower mate value are more likely to mate with men with lower mate value. And, as I explain in an earlier post, men with lower mate value are more likely to be criminal and violent.

So a proper New Zealand study would want to correct for the stepfathers' ex ante characteristics. It would also then partially answer Jan Pryor's question of the theory, raised in the original Press piece:

The theory also did not explain whether solo-mothers living financially strained lifestyles were targeted by men who preyed upon them and their children, Pryor said.

I'm curious how much of the effect here works through the biological Cinderella story and how much works through the assortative mating dynamics at the lower tail of the distribution.

Add to the list of "open questions that could be answered by somebody with time to muck around in IDI applications and the Stats Data Lab", or "Masters theses waiting to be written".

Wishful Treasury thinking?

Here's Treasury Secretary Gabriel Makhlouf in The NBR:

The business case for diversity in the workplace is clear. In the case of gender diversity, international research shows companies that have a balanced representation of women and men on their boards perform better.

I was curious what Makhlouf was citing when he referred to international research, so I asked. Treasury says Gabs was citing a Deloitte piece; the Deloitte piece cites work by Catalyst (2011 and 2007). The 2007 piece is a one-page infographic. The 2011 version splits firms up by quartiles of gender diversity and compares returns across quartiles as comparisons of means in what's basically a cross-tab and t-test. And it also cites a McKinsey piece, which is also just comparisons of returns across quartiles of firms sorted by gender diversity without any correction for other firm-level differences.

Now if there's any endogeneity in selection of board members, there could be problems. And there could also be problems if there are other things that correlate with both board choices and with performance. That's why the more standard method will run a pile of other stuff we know predicts firm performance then add the new variable, like gender diversity, in a multivariate regression. And it might try to find an instrument to get around the endogeneity issue.

Here's Adams and Ferreira in the Journal of Financial Economics, who do things properly and correct for all the other firm-specific bits:

We show that female directors have a significant impact on board inputs and firm outcomes. In a sample of US firms, we find that female directors have better attendance records than male directors, male directors have fewer attendance problems the more gender-diverse the board is, and women are more likely to join monitoring committees. These results suggest that gender-diverse boards allocate more effort to monitoring. Accordingly, we find that chief executive officer turnover is more sensitive to stock performance and directors receive more equity-based compensation in firms with more gender-diverse boards. However, the average effect of gender diversity on firm performance is negative. This negative effect is driven by companies with fewer takeover defenses. Our results suggest that mandating gender quotas for directors can reduce firm value for well-governed firms.

I'd quoted from their conclusion last year, emphasis added here:

Our results highlight the importance of trying to address the endogeneity of gender diversity in performance regressions. Although a positive relation between gender diversity in the boardroom and firm performance is often cited in the popular press, it is not robust to any of our methods of addressing the endogeneity of gender diversity. The true relation between gender diversity and firm performance appears to be more complex. We find that diversity has a positive impact on performance in firms that otherwise have weak governance, as measured by their abilities to resist takeovers. In firms with strong governance, however, enforcing gender quotas in the boardroom could ultimately decrease shareholder value. One possible explanation is that greater gender diversity could lead to overmonitoring in those firms.

More generally, our results show that female directors have a substantial and value-relevant impact on board structure. But this evidence does not provide support for quota-based policy initiatives. No evidence suggests that such policies would improve firm performance on average. Proposals for regulations enforcing quotas for women on boards must then be motivated by reasons other than improvements in governance and firm performance.

It is interesting that the Secretary of the Treasury missed this piece in the Journal of Financial Economics on a question of financial economics. Surely he has a research staff that can point him to these things.

There are other pieces out there in reputable journals, but this seems the one that has to be answered. Infographics or comparisons of means where firms are sorted by gender representation* aren't a great place to start.

I agree with Makhlouf's ultimate conclusion that providing flexible arrangements** is an important part of enabling greater female representation in senior leadership. But we shouldn't necessarily expect it to yield great dividends on the dividends front.


* Treasury's Living Standards Framework likely has a weighting in which it's ok to rank infographics ahead of the Journal of Financial Economics on matters of Financial Economics.

** On a related Wellington-specific whinge, think about how many offices put on after-work work events in the 5:30 - 7 pm time slot. Things held during office hours that are work-related, well, you balance it against other work stuff and make a call. Things held after kid bedtime that are work-related - if you're a two-parent family, it isn't hard to work something out. But the 5:30-7 pm slot is the absolute worst. If you have two working parents, somebody is then stuck on after-school duty if the other has to be at a post-work-but-still-work thing. And sole-parent households would have to sort sitters.

It's hard to find a day when there isn't an invite for some 5:30pm event that would be worthwhile, is great networking, and that would matter for work one way or another. They're great for the not-yet-kidded, and for those with adult children. But it's a reasonable hindrance on everybody else. We have those events too. Would that there were a better equilibrium.

Nights trouble

Radio New Zealand's proposed substantial changes to Bryan Crump's Nights programme.

Currently, Nights offers long-form interviews with a rather diverse array of locally based researchers and pundits, along with radio documentaries from overseas and excellent musical selections.

The change would scrap Crump's interviews in favour of a newsreader linking together externally sourced content. RNZ is shifting resources over to the digital/multimedia side, like the newer John Campbell checkpoint offering.

It would be rather a shame. There aren't really other slots out there that offer the longer form conversations that Crump hosts. Kim Hill's Saturday morning interviews are great, but lean more to the international guests and are rather a different style. Crump's style works well in the evening slot, and I don't think there's anything else like it out there.

Self-interest watch: I'm one of the pundits in Crump's stable, and I'd miss our regular chats.

Update: I've been pointed to a Facebook page for supporters.

Ballot snapshots

It made me really happy a few years ago when a student emailed me a picture of his completed ballot. Rather than tick the box for one of the parties, he'd written in his preference for that Gordon Tullock be elected. I knew that I'd done my job well.

It's maybe illegal to take a picture of your ballot. The Electoral Commission warns against it, but Graeme Edgeler's pretty sure it isn't illegal.

However, electoral law expert Graeme Edgeler said sharing a photo of a completed voting paper was unlikely to be illegal, as the commission's rules were intended to prevent people from mistakenly using a false ballot.

"The Electoral Commission might think it's against the spirit of the law...but the spirit of the law doesn't create a criminal offence.

"They might frown on people doing this, but I can't see a problem: it's part of the democratic process really, you vote how you want and if you want to shout from the rooftops, you can."

An Electoral Commission spokeswoman said any complaints about photos of completed voting papers would be assessed on a case by case basis.

The only good reason I can see for banning photos of a ballot is to prevent vote-selling. Suppose I offer you a dollar to vote for my preferred candidate. You can take my dollar, but I have no way of knowing whether you held up your side of the deal. But taking a picture from inside the booth with your ticked ballot provides the proof.

Now this matters less with the postal flag ballot: I could just pay you the dollar for the blank form, fill it in myself, and mail it. But it would still be easier for me to offer a dollar to anybody who tweets a picture of their completed ballot ranking the monkey-butt flag in first place.*

If you think selling votes is a bad thing, then you might want to support the continued ban on taking pictures of the ballot - unless it's a write-in ballot for Gordon Tullock. Those should always be allowed.


 * I do not care enough about flags to actually be making this offer. Are there really people who care enough about flags that they'd be willing to pay for an extra few votes for their preferred option?

Good urban policy makes for good refugee policy

A few months ago, when there was more pressure on government to increase the refugee quota, one of the push-backs from opponents asked where the refugees would live when housing markets are pretty tight.

Bad urban policy that limits supply naturally leads to this kind of view. One more house taken by somebody is one fewer house available for you or your kids when urban policy has made it too hard to build new dwellings to keep up with demand.

And now we have a nice bit of evidence on it by counterexample. Houston gets housing policy right. They allow expansion in the suburbs through use of municipal utility districts in which the subdivisions cover their own infrastructure costs through use of targeted rates that pay off the bonds used to finance things - the policy that Nick Smith reckoned to be some kind of voodoo economics. It just works. 

Turns out that Houston also is able to support a lot of refugees. 

Houston, which admits more refugees than any city in the nation, still supports Syrian refugees, even in light of the hard position carved out by Texas Governor Greg Abbott. "Not allowing refugees makes America look weak,” Houston Mayor Annise Parker told reporters. “It is the only humane thing to do.”

Humane housing policy that maintains housing affordability by allowing both densification and expansion also allows humane refugee policies.

It's also fun to think about the political economy of the mayor/governor divides across America on refugee policy. My first cut at it is that governors' median voters are more rural than mayors', but I doubt that's all of it.

Econ testimonials

In today's mailbag, a note in appreciation of the Econ major from one of Susan's cousins I haven't seen in years but who found me on LinkedIn:

If I recall correctly, the last time we spoke I was a freshman and you were selling me on majoring in economics. You were explaining that employers expect people with econ degrees to be smart and able to see the big picture and that it's flexible meaning an econ major could get into finance or accounting or really any aspect of business; all of which was appealing to me.

As you can probably tell from my profile, I landed in Supply Chain, BUT, I recently learned that was because I was an econ major.

At the time I was hired, there was a belief at XXX & XXX that you needed to be a supply chain major to succeed within supply chain. The manager who hired me didn't believe this and wanted to prove otherwise which is how/why I was able to get a job despite the job market in the US (and probably everywhere) being extremely competitive due to the layoffs and fear surrounding the 2008 financial crisis. I went on to have a pretty good run at XXX & XXX and the experiences there helped me land my current role at XXXXX Chemical.

All in all, the first 7 years of my career have been pretty successful but it all traces back to you convincing me to major in econ that allowed it to work out this way and for that I've been wanting to say thank you. Hope all is well down there.

Glad to have helped! Michael would have done well regardless, but economics likely helped at the margin.

Economics remains the best generalist undergrad degree. Most real on-the-job stuff you have to pick up on-the-job, but economics provides a framework that you can use in a really broad range of careers. The rigour is not only useful in its own right but also signals that you're smarter than the drones majoring in management.* Economists can think.

* I still utterly fail to understand how 'management' exists as an undergraduate degree. I can understand why there's demand for it - students who don't really know better and wanting to do something in business sometime. And I can understand why universities will provide degrees that meet customer demand. But if there are 22 year olds out there who are fit to manage anything, they're likely doing it already without having bothered with a degree. I get management as a post-grad degree on top of a real degree; I get management as a post-experience degree to figure out how to do the people stuff that still baffles me. I don't get it as an undergraduate degree.

Fun with Singer

I'd talked with Peter Singer back in September at the Christchurch WORD festival. Our conversation is now up! I've embedded the audio below, but use the link if it doesn't work. I really enjoyed the event. A few of the highlights:

• Around the 10 minute mark, I noted the push-back from parts of the NZ NGO community against measurement and testing effectiveness and asked whether that were just a NZ thing. Singer talked about the practical difficulties of measuring effectiveness and the importance of getting the donors onside. NZ's problem's been a bit different: good chunks of the government are on-side, and they're a big donor.


• At around the 17 minute mark, I proposed setting up a register of effective charities, and shifting their tax treatment such that donors would get a full dollar tax credit for each dollar so-donated rather than just the $0.33. He liked the idea in principle. I like the implication that we shift to letting people direct their donations rather than having the government do it. Singer liked the implication that we would be doing more to help poor people in poor places rather than focusing on relatively poor people in New Zealand who are, globally, relatively rich. 


• At the 21 minute mark, I followed on more directly: if we could cut funding from New Zealand public health so that the least effective third of what it does were eliminated, with the money going instead to preventing blindness and repairing fistulas in the third world, should we do that? He said he'd push the button to divert those resources. I would too.


• At the 33 minute mark, I asked Singer about the utility of false beliefs. New Zealand's churches seemed able and willing to step up to help New Zealand take on more refugees than anybody else, really. Altruistic atheists just don't seem to be able to get that kind of coordination. Singer said that there is obviously some utility of that sort, but you need to take it up a level and weigh it against the disutility you get on other parts of the bundle. I think that was a bit of a cop-out because it's easy to specify as thought experiment cases where there are net increases in utility. I pressed him a bit: if I enjoy utility from false beliefs, is that ok? He reckoned it ok so long as it didn't have spillover costs. Into the experience machine we go.


• At the 39 minute mark, I had my absolute most fun. As best I can tell, free range lamb raised in New Zealand loves having had the chance to exist. Lambs are joyful. They play and frolic and have a bad day at the end, but I'd sooner get to have that existence than no existence. Then, if those who care about animal ethics all flip to vegetarianism rather than eating free-range Canterbury lamb, they do substantial harm. Demand for ethically raised meat drops, so the supply of it drops, and the balance is tipped toward factory farming. By the 42 minute mark, we got to the nub of it. And Singer saw exactly where I was going to push things and so pre-empted it by just laying it out and agreeing. If we take his position on potential children's utility and the ethics of aborting one that would have a less-good life in favour of a later one who would have a better life, then potential beings' utility counts. And once that happens, the lives of potential joyful lambs matter too. Said Singer: 

  "I think that there is a defensible argument for saying that if the purchase of Canterbury lamb is a necessary condition for lambs to have what is for 99% of their existence a really good life and even the bad days are not like a day of being tortured for 24 hours... I do think that that ... would be a defensible diet."

I had a ridiculous amount of fun. Later, at dinner, I had the lamb. He didn't.

Other people got Singer to sign their copies of his book. I got this instead:

Huge huge thanks to the Christchurch WORD festival for letting me have this much fun.

Quick Triggers

Well, this seemed damning:

9 yr olds accessing alcohol at the Countdown Manukau last night. Supermarket's response is poor. Sort it out Countdown

— Papa Nahi (@papanahi) November 16, 2015

If supermarket clerks were really selling booze to nine year olds, like the kids buying smokes on Clerks, well, that would be worth damning.

It's illegal to sell to under-18s; clerks are supposed to card anyone looking under 25. Susan, far from 25, is occasionally carded and is never sad about it when it happens; never happens to me though.

An employee selling to a 9 year old should be fired on the spot and the store would likely be up for some penalties - would expect they'd be suspended from trading for a while, with the duration depending on the store's history and training practices.

But is it really that plausible that anybody would sell to a 9 year old? Are there really 9 year olds who could pass for 18, or clerks so addled that they'd fail to card? And, more junior staff can't make that call themselves: somebody has to come over and authorise the "yeah, over 18" call. Or that happens most times I buy beer or wine at the supermarket. So something seems fishy.

But let's go on from there. NZ Drug Foundation re-tweeted that initial tweet with comment:

A giant supermarket chain selling booze to children, NINE years below legal age! #shame #appalling https://t.co/LjrqDu0NNI

— NZ Drug Foundation (@nzdrug) November 17, 2015

NZ Drug Foundation seemed pretty quick to find it plausible.

But Dylan Reeve was less credulous:

@nzdrug @LewSOS I can't imagine any supermarket checkout operator actually selling to a 9-year-old.

— Dylan Reeve (@DylanReeve) November 17, 2015

Then @papanahi clarified:

@nzdrug 3 occasions in past fortnight where minors stole alcohol that store aware of. When confronted staff said too overworked to deal with

— Papa Nahi (@papanahi) November 17, 2015

And Lew Stoddart rightly noted that using the term "accessing" when what was really going on was 9 year old kids shoplifting is, well, misleading. It's inviting people to draw the outraged reaction that NZ Drug took:

@DylanReeve @nzdrug In such a case, "accessing" is stretched so far as to be misleading, I think

— Lew (@LewSOS) November 17, 2015

I suppose that @NZDrug will get around to clarifying things for those following it on Twitter in due course.

And who's @papanahi? The handle says "General Manager Maori Public Health at Hapai Te Hauora"

Not entirely sure why a public health official would use the term "accessing" when "shoplifting" is more appropriate, but glad that she clarified things.

Very nice that Dylan had his sceptic's glasses on.

Update: NZ Drug's corrected things. But they've also added this interesting policy suggestion to combat shoplifting by kids:

@DylanReeve @papanahi Open shelves of alcohol not only way - in Canada state owned stores do not display. If we have problems..... 1/2

— NZ Drug Foundation (@nzdrug) November 17, 2015

Behind lock and key where the beautiful packaging can't be seen. Any other products that supermarkets have to sell that way in New Zealand?

I love going shopping for beer and wine. The displays at places like Moore Wilson's, and New World Thorndon... they're things of beauty. Folks like Garage Project and Yeastie Boys put tons of work into their packaging. Tuatara's won awards for their bottles. Hiding that all away, to prevent a few cases of shoplifting a year... well...

Injury costs: mountain biking edition

I really don't like "costs to the public health system" as reason for taxing and banning stuff.

But it's always fun to look at how costs are treated when they come from activities that draw social approbation rather than tut-tutting:

Figures from the Accident Corporation Commission show that mountainbiking injuries across the region have increased from 174 in 2010 to 463 last year with a spike occurring each year. The cost associated with treating those injuries in that same time has jumped from $190,000 to $798,642.

"People do crash a lot, and I think that is an element of the sport in all honesty, but what we try to do is keep it to an absolute minimum," said Nelson Mountain Bike Club chairman Paul Jennings. He said injuries were a part of mountainbiking, as they were in many other sports, including rugby.

...

The ACC figures show that the most common injuries for mountainbikers were soft tissue injuries, lacerations, punctures or stings, fractures or dislocations and dental injuries.

The large majority of injuries were attributed to males between the ages of 35 and 44.

Where are the outraged statements by doctors complaining of the burden of dealing with 463 unnecessary presentations and the alarming near tripling of the number of accidents? The do-gooders noting the heightened risk for mid-life-crisis men irrationally obsessed with proving that they're not really old yet? The worries about kids being brought into this dangerous bike culture via so-called "beginner tracks"? The social cost studies tallying the costs of all the accidents and of the thousands spent irrationally by mountain bike enthusiasts on ever-nicer kit?

More seriously - I love the sensible attitude here. Risk is part of the adventure: mountain bikers know they take on injury risk in exchange for thrills. Would that others' risk preferences were similarly accommodated.

City Status

Robin Hanson wonders whether cities are places for high-status men and the women who seek them, with low-status men relegated to the hinterlands:

I’ve heard that polygamous sects are often run this way today, with older men kicking out young men when they come of age. But re-reading Montaillou on rural 1300 France makes me realize that humanity has long has related harem-like gender patterns.

Back in 1300 France, centrality gave status. The biggest cities were at the top, above towns and then villages. At the bottom were woodcutters and shepards, all male, who spent most of their time wandering far from villages or towns. Along with soldiers and sailors, these men lived dangerous low-status high-mobility lives in sparse areas. They sometimes tempted women into liaisons, or made it rich enough to start a family in a village. Such mating strategies may explain why such men moved so often even they were poor and moving is expensive.

Back in the high status centers, there remained a few high status men and women, many low status women, but fewer low status men. The lower status women were often servants to high status males, and often had affairs with them.

In the US today, the states with the most men relative to women are Alaska, Wyoming, North Dakota, Nevada, Utah, and Montana — mostly harsher low density areas. In contrast, the states with the most women relative to men are District of Columbia, Rhode Island, Maryland, Massachusetts, New York, near some of our biggest high status cities. Most big US cities have more women than men. The exceptions are San Jose, San Francisco, Las Vegas, Honolulu, Austin, Seattle, San Diego, places with new booming, mostly tech, industries. Men are more willing to move to try new often-harsher industries and places.

We hear college-educated women complain today that there aren’t enough college-educated men to go around, either during college itself or afterward. Of course there are plenty of other men around, but these women mostly consider such men beneath them. Seems to me this isn’t that different from 1300 France; women are more eager to locate near high status people. They focus on high status men, and lament there aren’t enough to go around.

Is it consistent or inconsistent with the theory that New Zealand has regular farmer balls, in which townie girls head out to the countryside to find rural husbands? The Middlemarch Singles Ball was even given theatrical treatment. Here's the play's premise:

The premise is really good: the hard-up committee discovers to its horror that all the singles coming to the next ball are female: there are no wifeless farmers left. So it is clear that men must be brought in, from the big cities if necessary, and to save Middlemarch's reputation, they must be taught before the ball to behave like real farmers, hard southern men.

Perhaps farmers in New Zealand are high status?

Pricey golf courses

Bernard Hickey trawled through 269 pages of Auckland Council reports to find this gem, reported in this morning's Hive News:

Elsewhere, Auckland Council released 269 pages of reports by Cameron and Partners and EY on Friday on alternative financing sources, including an estimate that its golf courses are worth NZ$2.1 billion if they were put to other uses, including for housing. The report estimates just four of the courses -- Remuera, Pupuke, Takapuna and Chamberlain Park -- are worth NZ$1.4 billion, but have a rateable land value of just NZ$47 million.

Remuera, for example, only pays rent to the Council of NZ$130,000 per year, yet EY estimated the fair market ground rental at NZ$16 million a year.

"This represents a significant subsidisation to private interests and raises questions about whether at least parts of this asset – the land the golf course occupies – could be considered for higher value uses," EY wrote.

The Cameron Partners report looked at Auckland's debt limit. Auckland is constrained by a 250% debt-to-revenue ratio limit. While they've about a billion dollars in additional capacity to take on debt, nobody wants to be right at the binding limit.

And so if Auckland's to use debt to help fund infrastructure in a growing city, how can they do it? The report discusses options for asset recycling: selling off, in whole or part, some of Council's assets. The report says Council owns $506 million in commercial parking buildings. Releasing 5% of Auckland's parks and reserves for use as housing could bring $2.25 billion. Auckland's golf courses are valued at $61 million for accounting purposes but the top four alone would be worth $1.4 billion as housing.

The report also highlights Council's failure to think hard about the opportunity cost of its asset ownership, failures in its cost of capital analysis, and political incentives preventing divesting of assets owned at the Ward level where returns flow to the general Council budget.

The nonsense around use of Council-owned land is one reason I like the idea of applying a land tax to Council and Crown-owned land. Council would pay the Crown based on a proper valuation of Council's land assets, and the Crown would pay a similar tax back to Councils. Councils seem to have a very hard time thinking about the opportunity cost of their asset holdings; turning some of those opportunity costs into annual on-budget expenditures could sharpen thinking.

Thanks to Bernard Hickey for the pointer. If you haven't subscribed to his Hive News yet, and are interested in NZ policy, you should.

Free the data

Why can't New Zealand public data be as publicly available as American data? Here's a snip from my column from interest.co.nz:

Academics in New Zealand wanting to use individual-level publicly collected data to look at questions of public policy interest have two basic options. They can request a Confidentialised Unit Record File from Statistics New Zealand for the Census or other collected data series, or they can request access to the data lab to get closer to the raw data.

Where America makes its anonymised samples free for anyone to download, New Zealand restricts things. The application form requires that you only use the data for the exact purpose you specify and limits how you use it.

Sometimes it is worth the costs of making that application, but a lot of the time a researcher might want to run a very simple correlation test or check whether average outcomes differ between two groups, just to see if there is any reason to go any further.

And, a lot of the benefit of easily accessible public data is in simple myth-dispelling. A lot of newspaper columns make a lot of assertions that are testable – at least in principle. Debunking them is not worth the hassle when it requires a specific application and approval process – even though Statistics New Zealand is exceptionally helpful through those processes. 

If New Zealand followed the United States in providing simple and accessible confidentialised public-use microsamples of its large datasets, researchers could undertake the kind of exploratory data analysis that leads to bigger projects down the track. Sometimes, we need to let the data tell us which hypotheses to test – and we need access to the data to be able to do it.

But, a New Zealand researcher applying for access to a confidentialised unit record file has to promise never to use it for anything other than the purposes stated on the application form, to keep the data secure (using it on laptop computers is effectively banned), and to destroy the data at the end of the research project or at the end of the 12-month licence.

Where rich American data is available to anybody with a web browser and an internet connection, and similar New Zealand data is rather difficult to get and to use, is it any particular surprise that a lot of New Zealand academics, paid in part by the New Zealand government, use American data rather than the New Zealand data that New Zealand taxpayers have already paid to collect?

And that is the self-inflicted wound.

On one side we have rich data that could throw light on countless interesting public policy questions, excellently and expertly collected and curated by Statistics New Zealand.

On another we have an army of academics whose continued employment increasingly depends on landing refereed journal articles. Those academics chose to live in New Zealand rather than elsewhere, and many of them would love to use New Zealand data to shed a bit of light onto policy discussions that are too-often devoid of evidence.

In between the data and the researchers we have the Statistics Act 1975 that binds Statistics New Zealand. To make things even worse, Statistics New Zealand will not release an anonymised data set to any researcher not based in New Zealand. Researchers from around the world help Americans to understand how their country works because they have free access to American data. New Zealand hoards its data like Tolkien’s dragon guards its gold.

Just look at the ACS data and how easy it is to access. Go to IPUMS, set up a free account, click the box that agrees that you will use the data for good and not for evil*, and then you can use the same SDA interface for the ACS data that you're of course well familiar with from the US GSS data. You can run regressions on the 2013 ACS sample, or cross-tabs, within the web browser. To do the same thing in New Zealand, you would have to specify exactly what you wanted to do and get prior permission for each thing.

* There seriously is such a box.

Pining for the newsmagazine programmes

Massey statistics lecturer Adam Smith dissects 3D's infotainment piece on the dangers of Gardasil vaccination.

3D's 22-minute piece, entitled Cause or coincidence, focused on four unfortunate young women with crippling diseases, and two who had died. They, like thousands of other girls in NZ, have had the human papillomavirus (HPV) vaccine, which reduces the risk of cervical cancer. The majority of the piece is taken up with Paula Penfold interviewing the girls and their families.

It was shocking and sad, in more ways than one. When asked, some of the girls and parents were convinced that the vaccine was the cause, though some weren't. Either way, as much as we feel for them, they are not qualified to make that judgement. Regardless, Paula Penfold seemed very intent on obtaining these emotive sound bites.

The science, on the other hand, barely got a mention.

...

Even if TV3 were intent on ignoring the science, why not provide some balance by interviewing families grieving for those lost to cervical cancer? How about mentioning the thousands of non-vaccinated girls with the same diseases as those in the story?

...

I urge the New Zealand public, when deciding on what to believe and whether to vaccinate your children, to place greater weight on the scientific evidence. The evidence here is quite clear, and it comes from literally over a million cases. In the face of it, a few emotive, cherry-picked anecdotes should not persuade you.

Cause or coincidence? TV3's story barely establishes coincidence. It certainly doesn't show correlation. The idea of cause is laughable.

If this is the quality of so-called investigative journalism on TV3, we're better off without it and we should let it die. The sad reality is that this shoddy journalism will likely result in some avoidable cases of cervical cancer, which may lead to the same fate.

You could maybe pin it on a declining media market and newsmagazine programmes having to go for anything that'll draw ratings, but it doesn't seem that new a phenomenon. Campbell Live's pieces on legal highs were every bit as educational as this 3D one.

The original programme is here.

3D's Twitter feed is interesting too:

@vincristine @paulapenfold @michaeltarry we all hear what we want to hear. You'll be pleased to hear those who hold the anecdotes ..

— 3D (@3D_TV3) November 9, 2015

@vincristine @paulapenfold @michaeltarry .. Thought we ignored their science.

— 3D (@3D_TV3) November 9, 2015

Well I guess that makes it balanced.

Australian potato wars

Remember the Manitoba potato wars, in which the ruling government-backed cartel banned anybody from selling potatoes grown in their garden?

Looks like West Australia is also crazy. 

Tony Galati, owner of Spudshed – a growing chain of discount greengrocers in Perth – and the man given the unlikely moniker of “rebel potato grower”, has been in and out of court with Western Australia’s potato regulator, the Potato Marketing Corporation (PMC), for the past five years.

On Wednesday, supreme court judge Paul Tottle granted the PMC an injunction against Galati. He has been ordered not to sell or otherwise distribute potatoes in excess of his official quota, which is set by the PMC and based on the estimated domestic demand for potatoes in any given quarter.
...
Galati has previously said he’s prepared to go to jail for contempt of court rather than deny his customers cheap spuds. He stopped short on Wednesday of explicitly saying he would defy the court order, but admitted his next steps could “possibly” land him in jail.

“The thing is we are in 2015,” he said. “The present government should be absolutely embarrassed to drive us to the supreme court to get an injunction to try and stop us growing potatoes to be competitive in this state. I can’t believe it.”

Both the ruling Liberal party and the opposition in WA have promised to deregulate the potato industry after the 2017 election. In light of those plans, Galati said, it makes no sense to take court action against him now.

Read the whole thing and weep.

Whenever somebody proposes regulatory harmonization with Australia as solution to anything, remember that Australia is barking mad.

School Fairs and showing-you-care equilibra

The curse of inefficient "showing you care" equilibria. I'd hit on the economics of charity races a few times; Mike Reddell went after school fairs this past weekend.

From his excellent rant:

We don’t usually get very involved in the fair. But I’d donated perhaps $25 of ingredients a while ago for people making preserves, sweets etc. And yesterday I made them a plate of chocolate marshmallow slice – a slightly fiddly recipe and, between ingredients and time, that probably cost at least $15. My nine year old is on the School Council and was “coerced” into manning a stall. She spent two and half hours doing that. I’m not sure how to value her time, but it isn’t zero.

And because she was on the stall and they needed parent volunteers as well, we weakened and put in half an hour or so each (getting to and fro etc made that perhaps 45 minutes each in total). How to value our time? Well, the marginal cost has to be above the average cost, and one needs to think in after-tax terms. $50 per hour seems very much towards the low end, but if we run with that, it was a donation of $75 between the two of us.

After running the numbers, he reckoned that it cost them rather a lot to provide a bit to the school:

That adds up to a contribution of $125 from our family – costed at the low end of a possible range of estimates. Had we just written a cheque for $110 to the school as an additional donation, we’d have been able to claim back a tax refund (as it would be a charitable donation) for a third of the amount. So we spent $125 to provide the school $110, even though we could have provided the same benefit to the school for perhaps $73. This can’t be an uncommon story. I might have costed our time a bit higher than the average parents would have, but this is a decile 10 school. Parental time is scarce and valuable.

And then there's all the time put in by the organisers, and the time wasted by the kids in prepping for the thing.

Were there any offsetting gains to compensate for the wasted $52? Well, it was nice to see the nine year old responsibly helping run the activity (but she has other involvements outside the home). Perhaps some people get a warm fuzzy feeling from “doing something together for the community”. But this is a school. We don’t apply this funding model to the local GP or, say, the supermarket We write a cheque. As a pro-defence conservative, the old liberal line about holding cake stalls to fund the air force once annoyed me a little, but…….they make a fair point. Cake stalls to fund our education system?

Now I know that high decile schools are somewhat caught. They are funded much less well than lower decile schools, and they are not allowed to charge fees. They can ask for “donations”, and most parents pay them, but even at lower-end decile 10 areas (which is how I’d characterise Island Bay), the resistance will start to rise if the requested donation is raised too far. But the economics of the current model just don’t seem to add up. And while there are deadweight losses from taxes, from the less inefficient taxes they are not as large as the waste implied by my cost calculations above.

I suspect that, from the school's view, there are benefits from parent engagement beyond the cheque. And I also suspect that muggles just don't view these things as harshly as economists do. We see the inefficiency and it causes huge disutility. Others view the participation as a benefit, not a cost, and so put value on their time measured against other fun things they could be doing instead.

Heck, some people even show up for graduations.

Mike's reckoned I'd be able to point to fun academic papers looking at the topic. I can't think of any off the top, but reader pointers appreciated.

Update: I left this as comment over at Croaking Cassandra. I still wonder about a general theory here:

Can’t point to any lit off the top, but a general theory on this needs to explain also why we wind up with ‘charity race’ equilibria rather than ‘work overtime and donate to the cause followed by a parade for the donors’ thing. And it might also have to explain why university graduation ceremonies are as tedious as they are for each and every person involved. And it’ll be related to the rise of the higher-cost religious denominations in the US relative to the ones that don’t ask as much of adherents.
There’s something weird going on in ‘showing you care’ equilibria where our normal intuitions break. Costs become benefits.

Preferential costs

There was much to like in Andrew Little's speech to Labour's conference, and especially around moves to liberalise restrictions on urban land use so that more housing can be built.

But requiring government to make job creation an objective of government procurement policy is a terrible idea. Here's Little:

The government spends $40 billion a year purchasing goods and services.

That’s huge buying power but, currently, government bodies only consider their own bottom line when they make purchasing decisions. Not the country’s bottom line, just their own.

They buy ‘cheaper’ options, often from overseas, regardless of the impact on New Zealand, even if it means Kiwis will lose work.

That’s the kind of dangerously short sighted thinking that has been behind some of the biggest government botch ups in the last few years.

• the Hillside workshop closure in Dunedin and asbestos in imported rail wagons;
• The Novopay debacle
• Kiwi businesses shut out of the $1.9 billion IRD computer system contract.

At a time when our economy is stalled and our regions are struggling, there is a better way. So today I’m announcing the first part of our jobs plan. We’ll use the government’s buying power to create jobs here at home instead of sending them off overseas. We will make job creation and the overall benefit to New Zealand a priority in how the government chooses its suppliers.

If the government wants to run a make-work scheme, it should at least be honest about it: set it up as a separate thing so it can be evaluated on its own merits. Bundling local preference into government contracting means taxpayers wind up paying too much for the goods and services provided by government, making taxes higher than otherwise or cutting back on services provided. And that's costly.

When Mercatus looked at the costs of these kinds of local preference policies in the United States, they found:

Using data from the National Association of State Procurement Officials and state procurement offices, the study categorizes the states into three buckets: (1) No Policy; (2) Selective/Weak Preference Policy; and (3) Broad/Strict Preference Policy. The data yield the following observations:

• Capital expenditures in states with broad preference policies are $158 higher per capita on capital projects than in states without any preference policy. The average household in a state with a broad policy will pay $408 more per year for government services than a similar household in a state with no policy. Overall, this translates to $664 million more in capital expenditures for the median state.
• Construction costs in states with broad preference policies are $148 higher per person in the state, or $382 higher per household. Overall, this translates to $622 million in additional construction costs for the median state.
• Broad preference policies damage the economy by raising the costs of government services. These costs are passed on to citizens through higher taxes.

The government does consider the country's bottom line when it awards contracts to the bidder who provides the most cost-effective solution. Anything else comes at a cost of other government services not provided or dollars not available for taxpayers to do with as they see fit. Those both matter.

I also wonder whether giving preference to local supplier just because local winds up contravening any of our trade agreements. Would we want NZ firms shut out of contracting for foreign government work because they'd employ people here to do it?

Condorcet Conundrums

The elimination ballot New Zealand will use for its coming flag referendum isn't a bad one, but it is a shame that they won't be releasing the data that could tell us whether we've failed to choose a Condorcet Winner.

Here's me at the Dom:

Instead of asking the Electoral Commission to check first for a Condorcet Winner, Parliament told the Commission to follow a simple elimination procedure. It works as follows. If any flag is the first choice of a majority of voters in the first round, things are simple: that flag would by definition be the champion of all. But things get trickier if there is no first-round winner. In that case, the option that was the first choice of the fewest voters is dropped.

Let's take a simple example. Suppose that a million people vote in the flag referendum. 350,000 voters prefer the Black, White and Blue silver fern design but rank the Koru as second and all other options below that. 340,000 prefer Red Peak, rank the Koru as second, and all other options rank below that.

Finally, 310,000 prefer Koru as their first choice, rank the Black, White and Blue silver fern second, and all other options lower. Under the elimination procedure, the Koru is eliminated first because it is the first choice of the fewest voters.

A majority then prefers the Silver Fern to Red Peak. But, had Silver Fern faced Koru head-to-head, the Koru would have won – and it also would have beaten Red Peak in a head-to-head race.

Whenever a flag is the second choice of many voters but the first choice of few, the elimination procedure that the Electoral Commission will use risks choosing a flag that would have been beaten in a head-to-head race by another option. It might not matter, as there are only some configurations of voter preferences that would yield that kind of result. But it is disappointing that the New Zealand Flag Referendum Act did not ask the Electoral Commission to check.

Even worse, the Electoral Commission is forbidden from publishing the data that might let us know whether the voting procedure has resulted in the wrong flag being chosen. I asked the Electoral Commission whether they could provide the data that would let other researchers test which flag might have been chosen under different voting rules. Their Senior Legal Advisor replied that Section 50 of the New Zealand Flag Referendums Act 2015 prohibits them from disclosing that information and that they would decline any Official Information Act request on that basis.

Runway questions

Wellington City councillor David Lee is asking the right questions about the proposed Wellington Airport runway extension.

All proposals thus far have the airport, one-third owned by Wellington Council and two-thirds owned by Infratil, paying for about a third of the extension's costs; the remaining two hundred million would have to be covered by central government and councils in the region. Different numbers float around, but it would be in that ballpark. I'm not sure whether the funding would be provided as a straight subsidy or whether the funders would be taking an equity position.

Lee critiques the economic impact assessment that highlighted the substantial effects that a big increase in airport traffic could bring. But economic impact analyses are not cost-benefit assessments and pretty typically count things like total visitor expenditure rather than net profit. NZIER pointed out the numerous differences between CBA and economic-impact figures in their rather thorough critique earlier this year.

If the projections in increased flights are right, and there's still about a $200 million gap that can't be recovered through slotting fees on the increased long-haul traffic, then any CBA would need to show real net external benefits of the project in the order of $200 million. Council could be persuaded by ones where the benefits include diversion of traffic from other parts of the country; central government should be looking for real evidence of net benefits to the country as a whole after accounting for diversions from other airports.

It's entirely plausible to me that we'd see an increase in flights from the Singapore hub to Wellington with the airport extension; players that currently don't fly to New Zealand might tap in and wouldn't have been included in existing surveys. But is it plausible that we get $200 million in real net external benefits from the extension? It'll be interesting to see the cost-benefit assessment when it comes out.

Previously:

• Optimal airports, in which I critiqued some of the benefits suggested for an extension.

Supply management: a poor investment?

Canada's Public Sector Pension Investment Board is expanding its New Zealand dairy holdings.

Emerald Dairy Farm, which is indirectly owned by the Canadian pension fund known as PSP Investments, was granted consent to buy a 280 hectare dairy farm near Oxford in North Canterbury by the Overseas Investment Office.

Bit surprising that Canadians would want to have anything to do with NZ dairy, given the supreme unquestionable awesomeness of supply management.

Exit and reform

Countries from which it is easier to exit saw stronger improvement in economic freedom: voting with your feet matters. Here's Josh Hall's abstract:

There is a small but growing literature on the determinants of economic freedom. In this paper I contribute to this literature in two ways. First, I empirically show that β-convergence in economic freedom occurred from 1980 to 2010. Countries with low levels of economic freedom in 1980 “catch up” at a rate of 0.7 percent a year on average, ceteris paribus. Second, I document the structural characteristics that contribute to this institutional convergence. My conditional convergence estimates suggest democratic institutions do not contribute to conditional convergence. Exitability, a variable that captures how easy it is for citizens to “vote with their feet” is related to the change in economic freedom from 1980 to 2010 in a statistically significant manner across all specifications. This provides some to the importance of “exit” versus “voice” with respect to the question of institutional change. 

This will be a weak force among relatively free countries: libertarians don't seem to vote with their feet, and only those with strong preferences will much notice the differences within the top tier.

But policy pressure caused by threat of exit by your more productive citizens can induce better performance in weaker countries.

Another licensing regime

The Law Commission's report on death recommended shifting funeral directors to a stricter form of occupational licensing.

Currently, funeral directors need to be registered, but registration is pretty simple: adding your name to a list. LawComm recommends barring from registration those with certain criminal convictions or disqualifying circumstances (undischarged bankrupts, for example), and requiring that registered funeral directors hold a relevant qualification or pass a knowledge examination.

A few years ago, Martin Jenkins put together a report on the extent of occupational licensing in New Zealand. They there reckoned that around 20% of workers in NZ were subject to licensing requirements. These kinds of requirements often sound nice, but act as a barrier to entry into particular professions - in doing so, they can restrict employment opportunities.

Here's Law Comm on that point:

This knowledge could be demonstrated by holding a relevant qualification prescribed by regulations made under the statute. As noted previously, qualifications are currently available in both funeral directing and embalming. Currently, there is no formal qualification specifically for operating a cremator, although NZQA-accredited training units in cremator operation are in development. When the cremation training units become available, they could be included in regulations.

However, we have some concern that, because the current qualifications for funeral directing and embalming require applicants to be employed in the industry already, making those qualifications compulsory for registration will give some control to existing industry participants over new participants in the industry. That is an undesirable situation because it may encourage anti-competitive behaviour and stymie innovation or alternative methods of providing funeral services.

The purpose of the qualification prerequisite condition is to ensure that industry participants have the requisite levels of knowledge (or are operating under the supervision of someone with that knowledge). One alternative option to demonstrate that knowledge would be to sit an examination (similar to a person passing the theory test before being permitted to learn to drive a car). This option would enable people to enter the industry without first having to be employed by an existing participant.

We have considered who would be best placed to set this examination. The existing training provider would have the expertise but also a conflict of interest. Alternatively, the registration authority could administer the examination, but that would require some expenditure and a different set of skills than is required merely for the registration process. It may be that the most effective solution is for the examination to be provided by the existing training provider under the registration authority’s supervision to ensure that there are adequate protections against the conflict of interest.

It would be ...interesting... to see whether it's possible to set up a practical knowledge test overseen by the licensing agency that doesn't just turn into a limitation of entry to protect existing funeral directors.

What would happen if you weren't registered?

We think that the potential for a conviction and fine would provide the appropriate level of incentive to comply with the requirement to be registered, and so the new statute should provide an offence of carrying on the business of providing funeral services without being registered or without acting under the direct supervision of a registered person. This should be a strict liability offence—that is, the prosecution does not have to prove a mens rea element of the offence (for example, that the person knowingly, recklessly or intentionally did the action). However, the accused person has a defence if he or she can show total absence of fault on the balance of probabilities. 

On a quick look through the Law Commission's paper, it's hard to see what particular problem necessitates the new requirement.

The main issue they cite is that some people think the current registration regime provides quality assurance where it doesn't. But surely that's an issue for the funeral sector industry organisations to be pushing in their marketing rather than the basis for a new licensing regime. It isn't hard to imagine funeral homes advertising on the basis that their directors are all members of an industry association that requires training: "All our members have trained and certified directors on-site to ensure that your loved ones are treated with the respect they deserve, unlike those other funeral homes."

We really shouldn't be proliferating mandatory licensing regimes.

Starting school

In New Zealand, every kid can begin school on the child's fifth birthday. There is then no particular birthday cut-off for schools, other than that kids might be stuck in Year 0 a little bit longer.

In much of the rest of the world, school starts on a particular date: if you turned 5 before some cut-off date, you're in; if not, it's another year of daycare, but you'll be one of the older kids in your class. This has consequences for timing of births.

New Zealand may be considering flipping to the "everyone starts on the same date" regime. And so you have the potential for a rather nice difference-in-difference study: none of the kids in the current cohort would have been born with parents anticipating school-start timing effects around a set start date, but if the regime changes, they will - in a few years. In the transition, there will be kids in one year who started on their birthday and others just starting on the set date.

If it happens, I wonder whether anybody will pick this up as a neat identification strategy.