Deadweight costs and ACC

This week's Initiative column at Interest.co.nz takes on deadweight costs and ACC. A snippet:

Andrew Little is right to be worried about the deadweight costs of this tax. The extra 0.33 percent that workers and firms pay in ACC levies would be better left in employer and employee pockets.



The Infometrics analysis uses standard Treasury methods where raising a dollar in tax is assumed to cost the country $0.20 over and above the value of the raised dollar: $0.20 in ‘deadweight’ costs, as economists put it. These are not primarily the administrative costs of collecting taxes but rather the costs the economy faces when a payroll tax makes employees more expensive for employers and makes employment less rewarding for employees.

An extra 0.33% in payroll tax will not be a make-or-break issue for most employees or employers, but would be enough to kill just under 600 jobs in a country with just under 2.4 million employed persons. As Little warns, excess taxation by ACC “costs jobs and growth and holds New Zealand back.”

...
But while we are considering changes to ACC to avoid the 0.33 percent excess tax, we could perhaps consider more ambitious changes. In particular, does New Zealand really need strongly prescriptive workplace safety rules if ACC premiums are set correctly? ACC offers reasonable discounts and penalty rates based on firms’ claims histories, with additional discounts for complying with best practice standards in safety.

The New Zealand Initiative’s Dr Bryce Wilkinson provided back-of-the-envelope indicative calculations thatthe additional costs of more stringent scaffolding regulations alone could be of the order of $180 million. If ACC has its levies set correctly, construction companies (and others) would already have strong incentive to provide a safe work environment, and could tailor their safety practices to reduce accidents by whatever method is most cost-effective in their particular situations rather than having to comply with standards that might not always be fit for purpose.

If Little could ensure that ACC gets its pricing right, and uses that mechanism to help ensure worker safety rather than prescriptive standards, the benefits to the economy could be much greater than the savings from reducing the average ACC levy from 2.16 percent to 1.83 percent.

The Asylum creeps in: health and safety edition

A reader emails me that the revised health and safety regime, which brings criminal penalties for company directors, will also apply to voluntary organisations. He writes:

I know you write periodically about crazy laws and being inside the asylum. As you might know, I'm a scout leader. A volunteer. One of things that I have enjoyed in scouting is the ability to let children and youth take risks. You know, tackle bullrush, climbing trees, crossing rivers, hiking, making and playing with gun powder, making their own bows and arrows (one shot an arrow clean through a window without breaking it :) ) and so on.

They keep making changes to health and safety laws which potentially undermine the ability to do this. The first was throwing in volunteers in the Health and Safety in Employment Act back several years ago. That added to our paperwork and probably did restrict some activities at the margin (but not hugely), which was a pain at the margin but that seemed to be all. But they are currently making a couple of other changes which increases costs to volunteer organisations and I'd predict the benefits are negative once they take into account lost consumer surplus from eventual changes and reductions in volunteer activities. You can find one mentioned at 
http://www.stuff.co.nz/manawatu-standard/news/63962701/New-safety-reforms-threaten-volunteers  

and another at
 http://www.scoop.co.nz/stories/BU1412/S00202/new-sentencing-act-exposes-businesses-and-individuals.htm 

They might not have any impact, but.....! Since volunteer organisations fall under the jurisdiction of the health and safety in employment act you can see why the sentencing act changes are a potential problem for them. It also seems to me to undermine the no-fault basis of the ACC scheme. I think ACC has some problems, but the no-fault provision is incredibly useful in not having to worry about frivolous lawsuits to extract payments to avoid the costs of the suits going to court, which then result in noticeable restrictions on people's activities, such as children playing where there is any tiny risk of an injury!

The link to the Manawatu Standard article has since died; I don't know whether they pulled it because the government has issued a very recent clarification, or if some other error has occurred. Can anybody confirm how the changes to legislation will be affecting volunteer organisations?

I also found a press release from an insurance company warning outfits to get liability insurance because ACC no longer shields against lawsuit:

Ms Cross says that under the previous legislation even the most serious accidents would rarely result in reparation awards over $100,000, “but with this new law, the figures are likely to be significantly higher.”

Ms Cross says that businesses should seek advice from their broker whether their statutory liability policy has the required level of cover, as this amendment will have potential impact when there is a breach of the Health and Safety legislation.

She pointed out that companies would not be able to insure themselves against any penalties but could get insurance that would cover reparation and legal costs.

Ms Cross says she will be working closely with her clients at Crombie Lockwood to prepare for this law change.

“At this stage it is still a bit unclear how the courts are going to use this new tool, but you wouldn’t want your company to be the guinea pig.”

I'd thought that the basic deal with ACC was that we gave up our right to sue in exchange for a mandatory kinda-ok-but-really-kinda-not insurance programme, with the whole thing making sense because U.S.-style tort excesses are worse. I suppose that potential damages are here limited: if the most that a party can be liable for is 20% of the total ACC claim, and if ACC doesn't really pay that much, then potential liability stays below that in the States.

Sporting Costs

This weekend's addition to the social cost of sport in New Zealand:

Motocross riders pushed themselves "to the max" at the annual Michael Godfrey Memorial Motocross this weekend, with nine riders having to be flown to Christchurch Hospital with injuries.

The 29th Michael Godfrey memorial event was held on Saturday and yesterday at Omihi, attracting 300 riders from around the country.

Nine riders had to be taken to Christchurch Hospital by the Westpac rescue helicopter.

All were treated for moderate injuries, ranging from concussion to limb fractures.

Race director Graeme Allan said it was ''an amazing weekend''.

''We had an incredibly strong depth of talent there. It's just the strongest team we've ever had.''

He said the number of injuries was not surprising given it was a ''national-calibre event''. [emphasis added]

The Accident Compensation Commission charges levies on employers that are adjusted by the employer's industry and history of workplace accidents [the Employer's Account], a 1.7% levy on all earnings* [the Earner's Account], levies on car registration,** and a separate levy on petrol. Finally, the government kicks in a bit for those not in employment. It looks like normal sporting injuries are covered out of the earners' or non-earners' accounts, depending on the employment status of the injured person; injuries to professional athletes as part of their job would come from the Employer's Account.***

What does this all add up to?

Figures released under the Official Information Act show that ACC paid out $56 million for rugby-related claims in the past financial year, making it the costliest sport for injuries.

The Wellington region generated $5m worth of rugby injuries.

The total cost to ACC for sport-related claims in the 2010-11 financial year was $333,995,252, of which $29,356,295 was paid out for injuries in Wellington.

Some of that will be injuries to professional athletes and would consequently come out of their paid levy on earnings. A professional rugby player's employer pays pays a 6.46% ACC levy on payroll, but with discounts of up to 58.7% if the employer agrees to self-fund some workplace accident costs. " For comparison purposes, central bankers pay 0.09% and universities pay 0.14%, both with similar access to the discount plan above-linked.

I'd be curious how the total above spilt between professional and amateur athletes; while the article gives the top-costing broad sporting categories, it didn't split those by whether they came out of employers' or earners' levies. Few of this weekend's motorcyclists would have been riding as part of their jobs, so they'd likely have had rides in the Westpac chopper paid by ACC out of the Earner's or Non-Earner's accounts.

A few points:

• While underpricing of sporting risk will yield some distortions in risk-taking in sport and in choice of sport, ACC here mostly funds a transfer from those who don't participate in sport to those who do.
• It doesn't seem like it would be ridiculously hard to knock out a sizeable portion of those transfers by having sporting clubs and major sporting events like the motocross race treated as quasi-employers for ACC purposes, assessing a fixed per-club levy with experience-rated premiums that varied with the type of sport.  
• But, there are many other sports for which it would be almost impossible to charge (bouldering, rock climbing, swimming, skateboarding...). Assessing levies on easy-to-levy sports and not on others might induce minor distortions in choice of sport.
• There are some sporting events that would likely die under actuarially fair pricing. It would be efficient that they cease, but the political costs could be high. The Motocross rally's spokesman indicated that the incurred injuries were on par with those he expected. An actuarially fair premium then would have been somewhere around the cost of the incurred expenses. If flying nine injured motorcyclists from Omihi to Christchurch on the emergency chopper and treating all of their injuries came in at less than $45k, I'd be reasonably impressed; $45k in insurance cost would be $150 per rider for the event. Some amateur rugby clubs that would probably also shut down under fair insurance pricing. 
• It's not easy to tell outside of a market system what risks would explicitly be priced within a market system. Socialising risks means a lot of private behaviours get seen as imposing social costs. Whether a risk gets priced seems more to do with popularity and acceptability than underlying characteristics.

* Maximum individual levy $1934 - no ACC levy is charged on earnings over $113,768. 

** About $200 per vehicle, but not adjusted by driver accident history or correlates of vehicle riskiness other than broad classes like "petrol vehicle" and "motorcycle over 600cc". John Small pointed to some problems in risk pricing across ACC vehicle classes a couple of years ago.

*** Injuries to Motocross drivers *might* come out of the Motor Vehicle Levy, if the dirtbikes are registered and if ACC deemed that to be road accident rather than sporting event. In that case, it's largely a transfer from road motorcyclists to dirt bike enthusiasts.

In praise of liability

Christchurch City Council helped ensure that a dozen people died last February. Ann Brower, who lectures at Lincoln, narrowly missed being one of them; she was the only survivor when an old dangerous building fell on top of the bus she was in. She catalogues the failures that led to her very close brush with death.

Regulatory failure at its most murderous made Colombo St run red that day. Responsibility falls at the feet of the building owners, Parliament, and most of all the Christchurch City Council.

In the Building Act 2004, Parliament encouraged and enabled, but failed to require, councils to enforce a minimum safety standard for known "earthquake prone" buildings.

Christchurch City Council chose a "passive" policy, of no strengthening requirements. Parliament failed to require, the council failed to enforce, and the owners failed to reinforce - in 1982, in 1991, in 2005, after September 2010, and after December 2010. For 30 years, the owners and the council did nothing.

On Day 1 of the hearing, the building owners blamed the council, for delaying demolition with the consent process. Council solicitors blamed the Resource Management Act, for requiring consents, and said they had no discretion in the matter.

Council's hands were tied, they said.

Yet, on September 14, 2010, a unanimous Parliament untied council's hands when it passed the Canterbury Earthquake Response and Recovery Act 2010. It gave the Crown power to amend or repeal any law, in the interest of public safety and earthquake recovery. Then they issued an order in council that expanded the situations in which council could demolish without consent. City council had the power.

...

The evidence, five centimetres thick, makes it searingly obvious that everyone knew what would happen. It was predicted but not prevented. It's not a case of trying, but failing, to protect public safety. Everyone failed to try, likely because neither council nor the owner bore the risk of deaths and injuries.

ACC bore the risks. I bear the scars. And 12 died. Under ACC, the government absorbs all liability, no matter who is at fault. So to the owners, safeguarding the building was all cost and no benefit. Since council failed to enforce building standards, why repair? Absorbing all liability creates a moral hazard. That's economist-speak for unwittingly encouraging risk by cheaply insuring against it. This rewards irresponsible behaviour by failing to penalise it.

The regulatory framework in place on February 22 forced taxpayers to subsidise risks that should have been borne by building owners and their insurers. Subsidies render unaffordably risky activities affordable, like repeatedly failing to reinforce an unreinforced brick building less than 200 kilometres from the Alpine Fault.

Without the taxpayers' subsidy of the risk through the no-fault ACC Act, many of the unreinforced masonry buildings would have been too expensive to insure, and the 12 who travel with me might still be alive. If there are to be subsidies, it is better to subsidise safety with public funding for earthquake strengthening than to subsidise risk.

I wonder to what extent other nested bits of regulations caused problems. I've often heard rumours about that some of Christchurch's charming deferred maintenance on older buildings stemmed from that getting consents to do any upgrading triggered requirements to bring older buildings up to newer code. And then this will interact with regulations on heritage buildings making any particular level of structural engineering upgrade far more expensive and time consuming. Small marginal upgrades that could have made small bits of difference for some buildings, if that's correct, then required owners to take on reasonably large upgrading costs. In worse cases, heritage regulations effectively barred earthquake strengthening altogether, although 603-13 Colombo was not on the Heritage Register. [Update below]

What's a way forward?

1. Require building owners to carry liability insurance for risks their buildings pose.
2. Establish Council funds, to which people would be invited to provide supplementary voluntary contributions, that would pay owners of buildings with heritage amenity value an annual subsidy for the positive contribution they make to the City. The burden of heritage preservation ought to fall on those enjoying the external benefits; that's best captured through payments by Council and voluntary contributions from high-demanders.
3. Abolish existing heritage protection legislation and fix the RMA - make it extremely easy for building owners to demolish or make safe their buildings. While CERA can stomp on RMA in Christchurch for the time being, I wonder how tough it is for an owner of an older Wellington building to get the permissions to fix it.

New Zealand building insurance markets seem relatively seized up; it could take a few years before private insurers are willing to start writing contracts on these risks. But that's no reason not to start the ball rolling. Announce this year that liability insurance will be required as of say 2018 and that the regs easing up on demolitions and building strengthening will be in place for 2015. That gives Councils a couple of years to start figuring out which buildings really merit subsidy and for owners to figure out whether their buildings are viable in a world in which they bear the risks of failure.

If the choice were between ACC and America's broken tort system, I pick ACC. But I'm not sure that we can't make improvements at the margin.

Full disclosure: Ann is a coauthor of Canterbury's Phil Meguire and, back before the earthquakes, sometimes joined us for drinks at Canterbury's Staff Club. I hope to be able to buy her a drink when the staff club is repaired and when she's again up for the trip out to Ilam.

Update: Ann emails:

Also it was a category 4 heritage building, meaning it was municipally (not regionally, nationally, internationally) significant and it was desirable (not important, very important, or essential) to keep it.  So under the city's own plan, they had the discretion to demolish without consent, even without resorting to the special powers granted by parliament.

Council staffers were far more rigid than the legislation required. Rigid structures collapse in earthquakes. We can't afford non-ductile Councils in earthquakeland. See also this excellent post from TheAntiplanner.

ACC Rates

If, as a creative artist, I earned more than $1500 outside of my normal job, I'd be liable to ACC taxes of 2.26% on all such earnings, or so ACC tells me today. I must ensure that such earnings not fall anywhere in the range $1450 to $1800 this year.

Does a rate of 2.26% really seem actuarily fair for on the job accidents for "Creative artists, musicians, writers and performers"? Note that private insurance markets charge less than 1% for income protection insurance, and that they charge men less than women (as women are far more likely to make claims based on mental health disorders).

Where's my opt-out switch?

There's a class of arguments that run as follows:

If I allow you to do X, and X turns out badly, I cannot credibly commit to letting you suffer the consequences. Therefore, your ability to do X must be regulated or prohibited.

And so we can't opt-out of public health systems or workplace accident insurance because the state cannot credibly commit to letting us suffer the downside consequences of accepting risk; we may soon prevent banks from getting "too big" because the state can't help itself from bailing them out (why not car manufacturers too in that case?). In this kind of world, a state that didn't want to agglomerate power to itself would be working hard to establish a credible reputation for letting things suffer downside costs of risk so that it wouldn't be put into the "can't credibly commit" situation. Instead, governments seem to be moving to bail out or compensate for any adverse life or business outcome and folks have come to expect and demand such bail-outs.

If I could convince you that, were you to suffer kidney failure, I'd be utterly unable to prevent myself from giving you a kidney, does that then give me the right to heavily regulate your diet and exercise regime to keep you from needing my kidney? Why should your rights be contingent on my self-control problems?

I'm a creative artist

In response to my email of a while back, ACC has decided to classify me as:

92420 Creative Artists, Musicians, Writers and Performers

I've always thought that economics was best placed in the Arts rather than Commerce anyway.

Still no word on what the earnings threshold is for having to start paying a separate ACC levy.

A friend tells me that he had a similar experience a while back, though he was above the reporting threshold. On calling ACC to confirm that he wasn't involved in manufacturing (the default category, it seems), they asked what he was involved in. He asked what's the cheapest category. They said "data entry". He said "data entry". And they were happy with that.

If I ever wind up actually having an invoice, I may petition to be reclassified as a data entry guy. Transcribing results from Stata into Excel counts, right? (and, no, Outreg won't work easily for what I'm trying to do...)

Come to think of it, if data entry has the lowest risk, what does that say about theories of low status leading to stress and bad health? If depression is work-related, and ACC covers for mental health issues related to work.... We have good reason to expect that ACC's premia aren't fully risk adjusted, but I don't think anybody's claimed they have the rank order wrong, just that it's too compressed. Hmm.

Data entry...the high school guidance counselor, on seeing the results of my standardized tests around the 10th grade, in which my "clerical speed and accuracy" score had me at the 100th percentile (none of the other bits at all shabby, save mechanical reasoning, which was only around 75th and was only that good because I kept thinking back to playing with the Lego Technix set...), suggested I might wish to become a clerk. Transcribing Stata results makes me wonder whether she wound up being right after all about actual outcomes....

Ok, back to the clerical work....

ACC

A letter I sent today to ACC after I received a letter informing me that I'm now considered self-employed in Manufacturing (not elsewhere classified) and that, while my earnings in such employment were, as yet, insufficient to trigger premia payments, they dearly wanted clarification on my employment details. Such clarification provided below. Enjoy!


Dear Ms. Barrott,
 
With reference to your letter of 5 November, referencing my new ACC Self-employment number of XXXXXXX, a few details are in error or at least need clarification.
 
A couple of years ago I made this mistake of writing a few short pieces for the local newspaper and accepting about $200 as total payment for it.  I then had to file an IR3 form and found the resulting hassle sufficiently large that I asked The Press to stop paying me for anything I might produce for them.  It would be because of this ridiculous short bout of "self-employment" that I've fallen into your files.
 
I'm a normal salary and wage earner at the University of Canterbury -- a senior lecturer in economics.  While I don't completely rule out accepting for pay short writing or consultancy contracts in future, there is absolutely no way I will ever do it again unless the earnings from doing so are sufficient to make it worth all the paperwork hassle; as I now know that I'm likely to have to fill in ACC forms as well as IR3 forms should I do extra work for pay again, I'm now less likely than previously to take on such work.
 
So, what "business" I had would not be well classified as "Manufacturing (not elsewhere classified)"; I wrote a few book reviews and an op-ed or two in my spare time for the Christchurch Press. 

I would dearly appreciate it if I could be exempt from being an ACC customer for any such freelance work - it is a service I do not want. It isn't just that the premia are very high relative to the risks I incur; it's also the hassle of even having to contemplate the paperwork that could be involved. And, as any such earnings are minor and supplementary to my main income, any losses of such earnings are not events against which I would wish to insure, even at actuarily fair rates.

By my rough estimate, my family already pays about $3300 in ACC premia through the earnings levy, petrol levies (we drive well in excess of the average, being recent migrants touring the country), and car registration fees. This slightly exceeds the amount we pay for our house, life, health and car insurance; our employers also pay ACC premia on our behalf which, as we are both workers in fairly safe office jobs, cost more than would an actuarily fair policy as ACC cross-subsidises risky jobs by insufficiently adjusting premia for actual employment risk. We're sufficiently burdened by our contributions to a scheme which we did not ask to join, are not allowed to leave, but for which we are compelled to pay.

Please strike me from your self-employment ledger for the time being. And please advise me as to the amount of freelance earnings that would trigger my being compelled to purchase additional unwanted services from your scheme in order that I can take due care in choosing such work, either ensuring that I earn just under that amount or sufficiently in excess of the threshold that the paperwork would be worth the hassle.

Sincerely,

Dr. Eric Crampton

Afternoon roundup

Posting has been light as I've finished one set of grading and polished off a submission with Matt Burgess to the Law Commission on their alcohol issues paper. More grading for the weekend. In the meantime, enjoy these:

• The University of Akron demands a DNA sample from staff. I don't worry much about my DNA being out there, but is the kind of place that would want this the kind of place that you'd want to work? Sheesh.


• George Soros throws $50 million at funding anti-economics economists. Will the academic outcries be as loud as when BB&T gave $1 million to fund a course in Ayn Rand studies? Similar bequests on the right have led to endless handwringing about subversion of the independence of academia: just remember the establishment of the Friedman Center. Why the silence now? Hmm.


• I'd warned that ACC might have cause to worry about annoying John Small. Seems I was right.


• Lindsay Mitchell points to a new Treasury document showing that

  Households (with children) in the bottom half of the income distribution effectively pay no income tax or receive tax credits, because of the interaction with the income support system.
  
  The top 10% of income earners (those earning more than $70,000) pay more than 40% of all income tax revenues and about 20% of GST revenue.

  The bottom half pay zero net tax; the top 10% pay 40% of the tax. Yikes.

Poking economists can be risky

When I got annoyed about BERL's work on the "social costs" of alcohol and wasn't impressed with their response to critiques, things got interesting.

Now it seems that John Small is a motorcycle rider. And he's started digging into ACC's justification for massive increases in insurance levies on motorcycle registrations. And he doesn't like what he's finding. I hope for ACC's sake that they're able to quickly show him what they were up to, or that Small doesn't get a lot of consumption value out of annihilating shonky analyses that justify imposing costs on him. 'Cause as mildly irritating as I was for BERL, I'm sure Small would be far more irritating for ACC.

It makes sense that bikes would have to pay a bigger fixed cost than cars even if risks per mile driven were identical across the two vehicle classes: bikes use less petrol per kilometer, and ACC charges a petrol levy of 9.9 cents per litre to reflect the added risk per additional amount driven. They can't charge differential petrol taxes per vehicle, so it has to get loaded into the fixed charge. Given that, though, it would take remarkable differences in accident risk/damage by type of motorcycle to generate the fixed charge difference between small and large bikes that ACC proposes: $257 for a <125cc bike and $745 for >600cc. The larger bikes use more petrol per kilometer than the smaller bikes.

Small is definitely right that there's a bias against motorcyclists built into the system, but the optimal tariff structure given an untaxed segment is pretty difficult. First best, we eliminate the untaxed segment: we can and should put an ACC levy on cyclists. It would be fairly easy to require a rego for cyclists and to charge an appropriate ACC premium for them (risk rated for type of bicycle, whether there's a kid's seat, etc). Doing it for pedestrians would be pretty tough. The only way of doing it, best I can reckon, would be through a poll tax added onto your regular income tax, perhaps risk rated by number of pedestrian accidents in your neighbourhood. In that state of the world, premiums could reasonably reflect the two-sided nature of accident costs (a car-bicycle accident needs both the car and bicycle present).

Outside of that state of the world, whenever a bicyclist gets on the road, the ACC premium for any vehicle that can injure a cyclist, even if it's one of those horrible cyclists that plug up Riccarton Road going through Hagley Park despite the existence of perfectly good cycle paths going through the park paralleling the road (hates them I do), goes up. So the bias is really on any segment that is taxed compared to the untaxed segment. We'd then expect, though, that trucks and buses would have a heavier charge attached to them -- they do more damage to the untaxed segment in any encounter between the two. Small says trucks are getting a pretty sweet deal. Given that diesel trucks don't pay a petrol levy, he's almost certainly right; would need more details on accident rates to be sure though.

That's enough for now - I'm off for a ride.

If I were ACC, I'd be rather nervous about the "for now" part. Sounds like there's a fair bit he could take a sledgehammer to, were he so inclined.

Proves too much

I've about a half dozen times heard various Labour Party spokespersons on National Radio arguing that allowing private competitors into things covered by ACC, the New Zealand Accident Compensation Commission, is bad because private firms have to earn profits and so they'll have to have higher cost structures than the public insurer.

But no National Radio interviewer provided the obvious retort:

If the argument were true, we'd want the government to be running everything! Why do we allow private provision of supermarkets? Woolworths just sucks out profits to send back to Australia when a government-provided supermarket wouldn't face that constraint. Heck, why do we allow private competition in property or life insurance? If the argument were true. But it isn't. And the reductio makes it obvious. And the reductio is obvious. And I didn't hear anybody suggesting it. Maybe I just wasn't listening closely enough.

Andrei Shleifer nicely lays out the conditions under which state ownership is preferable to private ownership. In short, if you're worried a lot about post contract chiseling on quality on non-contractable dimensions due to cost pressures and if you're not worried about keeping costs down and if product innovation doesn't matter much, then you might want to stick with public ownership. Shleifer figures AirForce One might fit the criteria. Workplace accident insurance? Not so much.

Afternoon roundup

• Midas Oracle hosts excellent videos explaining why you should never ever talk to the police. Never. Must watch for American readers.


• Tim Hazledine thinks ACC is just fine. I disagree. Yes, insurance schemes can run short run deficits if there's a bunch of negative shocks. But that isn't what's going on here. Rather, they're not charging anything like actuarily fair rates; heck, some classes of payouts don't even have any premia charged at all! Yes, a case can be made that ACC is preferable to transactions-costs-heavy tort litigation; that's not a case for an insurance scheme paying out for things where folks don't pay a premium. If there are classes of things for which the government wants to provide compensation but doesn't want to charge an insurance premium, or where charging a premium is too difficult, it's best not handled through the insurance system but rather through the welfare system. The more ACC is social insurance rather than risk-adjusted premium-based accident insurance, the better the case for not having ACC at all and just having generalized welfare programmes. I still prefer privatisation and actuarily-fair premia.


• Bruce Schneier applies the Lucas Critique to internet security. If you penalize companies for leaving comment spam, they'll leave comment spam for their competitors...

Darnton on ACC

When will one of the major dailies start running Darnton's commentaries? They're wonderful fun: far better than 75% of the dreck that shows up on opinion pages. Today he hits on ACC

Of course, ACC isn’t an insurance company; it’s yet another welfare agency. If it was an insurance company it would offer me a lower premium if I took on a larger excess. I might get a no claims discount. It could offer me exclusions for things I didn’t want to insure – for example, “self-harm.” I’m pretty sure I don’t need to insure against deliberately slicing myself with a razor. First, I’m not an idiot teenager. Second, if I’m desperate for attention I just knock together a scantly researched and inflammatory blog post.

Over the last few years, ACC has morphed into the Accident, Bad Luck, Stupidity, and Feeling Sad Compensation Corporation.

The last line is particularly nice.

Accident compensation

Our nationalized Accident Compensation Scheme is running a large deficit. Mostly because of increases in entitlements enacted under the previous Labour government, but also because of severely attenuated risk linking of premia.

National proposes these among other changes. I trust that opposition to these measures will be limited. Or, at least, folks who complain about these changes ought to find that every other objection they might raise to anything at all will be severely discounted. The hopefully uncontroversial changes are:

• Reversing entitlements for willfully self-inflicted injury and suicide
• further restricting entitlements for criminals
• reversing income compensation extensions for non-earners

Again, this means that your injuries incurred while committing crimes or while attempting suicide led to compensation through ACC. It would be too perverse if criminals could have qualified for income compensation for on the job injuries. Surely it wasn't that bad. Was it? I mean, if they were paying ACC levies on their heist-based earnings, that would be different, but I rather suspect that they weren't.