Availability theory and inventories

It never made sense to me that restricting bottle shop hours would have any particular effect on alcohol consumption. It's an empirical question obviously, but surely people hold inventories against periods of lack of supply. The only time I was caught out was when I didn't know that Virginia ended bottle sales at 10pm when I was a grad student and we ran out of beer. It didn't happen a second time.

Otherwise, who could be affected by the closing times? Suppose that you're trying to restrict your own consumption by keeping lower stocks in the house. At any point you could be tempted to go out and buy a lot more than some other version of you would like you to consume. The store being closed at particularly tempting times could have an effect. Like, if the 3am drunk version of you would really like to buy more alcohol, but the 7pm earlier sober version of you wanted to prevent that, you could effect that strategy by having limited supplies in the house and knowing that the shop wouldn't sell any to 3am drunk-you. Alternatively, you could just hide the credit card.

Bernheim et al take it up in the latest AEJ: Policy. They look at the effect of American blue laws: some states bar alcohol sales on Sunday,* and think about them in the context of commitment devices.

Commitment devices in general are things you can use to preclude future courses of action - like the story I gave of the 7pm-you above. My favourite work is still Jon Elster's Ulysses Unbound, where he goes through all the ways we bind our future selves. The availability and simplicity of these mechanisms has made me deeply sceptical of irrationality-based reasons for paternalistic regulation. Bernheim et al note one of these:

Some evidence from clinical practice actually casts a degree of doubt on the hypothesis that addicts value commitment opportunities. For example, alcoholics can commit to sobriety by taking disulfiram, a drug that produces an unpleasant reaction to alcohol. However, only supervised disulfiram administration is generally recognized as effective; compliance is poor among patients who are given the drug to take on their own (see, e.g., Hughes and Cook 1997, and Anton 2001). Of course, an alcoholic who uses disulfiram runs the risk that he will give in to cravings and experience an extremely unpleasant reaction. Poor compliance may be attributable to this risk rather than to the absence of a demand for commitment more generally.

If you take disulfiram, it seems unlikely you'd give in to cravings more than once; you instead stop taking it so that you can give in to cravings. But that too doesn't point to irrationality: if I choose today to stop taking disulfiram so that I can tomorrow get drunk without being immediately violently ill, that suggests forward-looking behaviour entirely at odds with the typical irrationality stories of people impulsively giving into stuff despite their better selves.

That isn't the main point of the article. Instead they're looking at whether bans on Sunday liquor sales have any effect on consumption. You'd predict:

• rational, forward-looking people plan ahead and keep enough inventory on hand: their consumption is unaffected;
• sophisticated time-inconsistent forward-looking people plan ahead by not keeping inventory on hand and are helped in that by Sunday closing laws: their consumption drops;
• unsophisticated time-inconsistent people keep inventories either way, expecting that they'll be able to control their drinking, and being continually disappointed: their consumption drops only if they've procrastinated about shopping.

They find:

Our central finding is that liquor consumption increases along with allowable on-premise Sunday sales hours, but there is no evidence that it is affected by off-premise Sunday sales hours. These findings are robust with respect to a wide variety of specifications, including ones that control for preexisting trends and concurrent changes in related restrictions. Thus, to our considerable surprise, we find no indication that the availability strategy plays a meaningful role in aggregate liquor consumption. Instead, the observed pattern coincides with our prediction for time-consistent consumers who have good memories and low costs of carrying inventories, as well as for naïve time-inconsistent consumers who, in addition, do not regularly find themselves without inventories due to unintentional procrastination of shopping. Naturally, the possibility remains that liquor purchasers are time-inconsistent and sophisticated, but that they favor some other technique for exercising self-control. For instance, Bernheim, Ray, and Yeltekin (2015) demonstrate that a sophisticated time-inconsistent consumer may avoid external commitments because they undermine internal self-control strategies. [emphasis added]

Not a big surprise that consumption on-premise goes up when Sunday sales are allowed - a summer Sunday afternoon at out at an outdoor pub is lovely, and it's not like you can keep "Sunday at pub" in the back cupboard to save for Sundays when Sunday opening is banned. But you can stock up on alcohol, and people do. So the only effect of closing the bottle shops is inconveniencing customers who'd prefer to do their shopping on Sundays.



* Bruce Yandle explains why these policies exist in other work.

Bootleggers and Baptists - calorie count edition

Bruce Yandle's model remains the most compelling explanation of nutty regulation. Take an interest group who'll profit by some regulation, combine it with a public interest group who can put a nice public interest veneer on it, and strange bad stuff can happen.

A couple years ago, it was "Standard Drink" labeling on alcoholic beverages. The public interest story was that people didn't know how much alcohol was really in the stuff they were buying and so need the standard drink labeling to help them out. So the "Baptists" wanted labels on every bottle of booze saying how many units of 10 grams of alcohol it contained.*

That's the public interest veneer. When you recognize that larger producers can spread fixed labeling costs over more units and that beverages from overseas often don't have "standard drink" labeling, the bootlegger story is more obvious.** Standard drink labeling is a way of imposing costs on smaller producers (to the benefit of larger producers) and of imposing a non-tariff barrier against imported drinks. I remember the craft beer importer on Papanui Road who manually had to print off standard drink labels to paste, one by one, to bottles of niche craft beers he brought in from overseas. He went out of business before the earthquakes, though likely because the New World across the street improved its craft beer offerings rather than because of the labeling regs.

Today's version: calorie counts. An AUT nutrition prof wants mandatory calorie counts kilojoule labeling on alcoholic beverages. No other country has calorie or kilojoule labeling requirements, or at least not according to this table. American calorie labeling is voluntary.

The least intrusive form of the regulation would simply have "calories from alcohol" labeling. That's a straight function of the number of standard drinks already on the label. Going beyond that to get accurate calorie counts whenever a small producer decides to brew an odd milk stout or add pineapple lumps to the brew and you're again working to impose fixed costs on small niche brewers and to impose a non-tariff barrier on imports.

If the government is determined to cave in to the healthists on this one, here's how to make it least harmful:

• Exempt small-batch products;
• Exempt imports;
• Require vendors selling exempt products to put up a notice somewhere saying "The alcohol in one standard drink provides 290 kilojoules."

Update: Ha! Everything old is new again. One year ago, almost to the day, there was another push for calorie labeling on beer. Here's what I'd then said; glad to see I'm consistent.

* And, predictably, those who care about value for money find it easier to divide price by number of standard drinks than to run the more complicated "price divided by (volume times % alcohol).

** Worse, the UK uses an 8 gram (10mL) standard drink size. So a bottle of imported Guinness will have the wrong number of standard drinks. For the confusing morass of international alcohol labeling requirements, read this. Imagine setting up as a small producer and thinking about exporting. What kind of labels are you going to have to draw to be able to meet the requirements across a broad enough set of countries? What happens if you have a cancelled export order that you want to ship to another country instead but you'd put on the wrong set of labels?

That supply not enter the market

In response to a few attacks on taxi owners, New Zealand three years ago started requiring that all cabs have cameras and be on 24-hour monitored dispatch.

I expected that this was a move towards cartelization that would have bad effects on consumers. I'd written:

The real cost of the soon-to-be-mandatory taxicab cameras won't be the 30-odd cents it adds to the cost of the typical cab ride. Rather, it's the loss of surplus that will come when the World Cup hits in 2011 and jitney cabs will fail to come into the market because of the increased fixed cost of shifting your private car into taxi service. Right now, best I'm aware, so long as you have a driver's license that permits it, nothing much stops you from slapping a sign onto your car saying "Cab" and charging to run folks around town. We'd expect that to happen during odd spikes in demand.

I figured that this would have most effect around the time of the Rugby World Cup, or other big events that would otherwise bring jitneys into the market. Looks like it's been worse than I expected.

The Herald reprints a piece from The Star:

A lack of taxis in some parts of Christchurch is causing major problems for evening revellers trying to get home safely.

The drop off in taxi numbers is leaving agitated people outside pubs, leading to fights and tempting people to drive home after drinking.

Some taxi drivers are refusing to go to the eastern suburbs because of concern about damaging their vehicles on quake-damaged roads, which is compounding the problem.

New Brighton's Pierside Cafe owner Tony Brooks said since the earthquakes they could not get taxis to take their patrons home.

Security staff, bar managers and DJs were driving patrons home.

"This has been an issue from the moment the earthquake hit - this is not just a little problem, this is a big problem," he said.

"We had Midge Marsden here on Saturday and it was an amazing gig - but it was all soured at the end of the night by the lack of taxis," he said.

Mr Brooks said he had been pre-booking taxis for when the bar closed at 1am but they never turned up.

People were driving home drunk as a result.

Taxi companies say tougher regulations and costly maintenance on vehicles because of damaged roads meant six operators had stopped since the earthquakes.

Blue Star Taxi's general manager Bob Wilkinson said: "Part of the issue is the way the bar scene has split, now the hotspots are in Riccarton, Lincoln Rd and Merivale and The Palms and it is pretty hard to cover all of those areas instead of just the central city before the earthquakes.

"Six taxi companies folded because new regulations mean they had to have 24-7 rosters, cameras in cars, a phone room and this added to the cost of running them."

First Direct's owner Pam Jackman said: "Our drivers don't want to go out to Brighton because of the roads." Ms Jackman said their taxi could do between 1000 and 3000 kilometres a week.

Ferrymead's Speight's Ale House restaurant manager Joseph Poulter said the most frustrating thing was waiting for the taxi companies to answer the phone on a Friday and Saturday.

"We just give up and try another number," he said.

Mr Wilkinson said there were only three major taxi companies left in Christchurch which were covering a city once serviced by more than nine.

You'd normally expect that shortages like this would bring new supply into the market: people who'd charge a fair bit to run cabs from the Brighton bars late in the evening. Pull the kid seats out of the back of the van, slap a sign on the side, and offer fixed-price fares to different parts of town. But not if you also have to run under dispatch and cover the costs of a camera setup.

I wonder whether private-hire vehicles are still exempt from the regulations.

Bootleggers and Baptists - alcohol regulations

In America, liquor licencing regulations generally serve to protect incumbent liquor stores against competition while being supported by anti-alcohol community activists that give the veneer of public interest. Here's Minneapolis:

The Star Tribune has (finally) caught on to the curious story of Dan Kerkinni, whose attempts to open a craft beer-oriented liquor store in Uptown has highlighted the complex and restrictive regulatory regime controlling liquor stores in Minneapolis. As you likely know by now, Kerkinni was first Bock-blocked by the City Council, with Council Member Meg Tuthill pushing through new distancing requirements to prevent Kerkinni’s store from opening at 26th & Hennepin. His second attempt to open the store, in a small retail space a block south at 27th & Hennepin, looks doomed to fail, as the young entrepreneur (and his brother Pierre) have been outmaneuvered by Kowalski’s Market, which has received land use approvals for a wine shop addition at their 24th & Hennepin grocery store.

Meanwhile, in New Zealand, small wineries are petitioning the government that duty-manager requirements to be imposed on cellar-door operations under the proposed revision to alcohol legislation will force their closure.

But at least the Select Committee report back on the bill recommended knocking out some other bits of silliness.

We recommend inserting new clause 100(2) in order to carry over a provision from the Sale of Liquor Act which prohibits the licensing decision - maker from considering the potential effect of a licence on the business of another licence holder. We do not believe that businesses should be able to use the licensing process to block potential competitors.

I'll expect that the amenity provisions in licencing would still have the effect of allowing competitors to encourage the lodging of objection to new licensees, but it's nice that they're at least worrying about the problem.

Smelters and baptists

Bruce Yandle says we ought to expect particularly pernicious results when a moral case for regulation (the Baptists) coincides with another group's having a strong pecuniary interest in the outcome (the Bootleggers).

Exide, a NZ battery manufacturer and recycler, is suing the government, seeking an injunction against that used batteries are exported to the Philippines and Korea for recycling.

The country's biggest recycler of toxic waste is preparing to sue the Government over its refusal to ban shipments of used lead acid batteries overseas.

It is understood the Petone-based Exide smelter is readying legal action against Commerce Minister Simon Power over his failure to stop the shipments in what it says is a direct contravention of New Zealand's international obligations under the Basel and Waigani treaties.

The treaties are supposed to stop rich nations from dumping their toxic waste on poor nations.

Exide's lawyers ChenPalmer are expected to ask the Government to slap an immediate moratorium on battery shipments and will seek an injunction if it refuses.

The move comes as sources close to Exide suggest the plant has enough batteries to stay open for just four days this week. It may have to close on August 15, costing about 40 jobs, depending on the legal action, unless a new supply of used batteries is found.

The Green lobby is supporting Exide's call for the Government to stop further exports, saying they threaten New Zealand's image as a clean green country and a responsible member of the international community.

...

Countries such as Australia stopped exporting toxic battery waste to the Philippines after they signed up to the Basel and Waigani conventions, which aim to limit the movement of toxic and highly hazardous waste beyond national borders. New Zealand is also a signatory but the Government argues that banning lead acid battery shipments would give Exide a monopoly.

Dr Smith – who will meet Exide bosses this week – has launched a review of shipping policy but said he would have to be satisfied that Exide was running "a world's best-practice recycling facility at Petone" if the policy were to change.

The article notes that Exide's environmental record in New Zealand has not been stellar.

A few points worth noting:

• New Zealand is unambiguously cleaner and greener if toxic waste is sent abroad than if it is dealt with here. The folks who live next door to the smelter would agree. Maybe it could hurt our image as a "responsible" country, but I can't imagine those effects are discernible from noise. 
• Shipping toxic waste to poorer countries like the Philippines can be efficient even if it is handled there less well than it would be here - I'm not convinced the Summers Memo was wrong, parody or not.
• I would be very surprised if Korean standards (South Korean, anyway) were below New Zealand's; moreover, they'd have vast economies of scale as compared to processing in New Zealand. Abatement of emissions from a lead battery recycling plant seems likely to be the kind of thing that has really big fixed cost in setting up a high quality plant and then relatively low marginal cost. I'd put better than even odds that net global environmental quality goes up, not down, if we export batteries to Korea.

HT: Darian Woods

Bordellos and Baptists

In the Sunday Star Times:

Most of central Auckland's red light venues are clustered around Fort St, a few blocks further downtown, and the Chow brothers' plans to bring organised prostitution into the mainstream entertainment district near the casino had upset some business owners and residents in the area.

However, the Chow brothers' choice of the Palace site to launch their entry into the Auckland market was probably based on a similar strategy they used successfully in Wellington, where they are the leading players in the capital's adult entertainment industry.

They had been quick to realise the business opportunities that became available when prostitution was legalised in 2003, opening Wellington's first legal brothel, Il Bordello, on the city's traditional red-light strip, Vivian St.

Their next venture, the Mermaid strip club and its associated facility, the Splash Club, were more controversial because they were located in the centre of Courtenay Place, the hub of Wellington's mainstream nightlife.

The Chows successfully resisted attempts by the council to curtail those businesses and would have benefited handsomely when planning changes were introduced to prevent similar types of operations opening up in the area.

The plan in Auckland appeared to be along similar lines – get established on a prime spot while planning rules allow it, then rake in the cash once the rules are changed to prevent any competitors setting up nearby.

And the cash-generating potential of the adult entertainment business should not be underestimated. Michael Chow said his Wellington brothels had not been affected by the recession.

I'd noted that most of the scraps now are about zoning. It's damned obvious in hindsight that incumbent brothels will have strong incentive to try to zone out new entrants. Bordellos and Baptists is an obvious extension of Yandle's Bootleggers and Baptists hypothesis: inefficient regulations are most probable where there's someone who'll profit from them and someone who'll provide the moral veneer.

I'd love to know more about the zoning decisions. Did the Chow Brothers just luck into locations that were likely to draw later zoning protection, or did they do anything to help things along?

Bootleggers and Baptists: 1950s NZ Restaurant edition

@HerrSchnapps points me to this obituary:

Dutch-born Mr Groen spent seven years fighting liquor laws before he became the first to win the right to serve wine, beer and cocktails in restaurants.
...
Mr Groen arrived in New Zealand from the Netherlands in 1952, and was amazed to find that wine and beer were only served with food in hotels while the bars were open.

An alliance between the Temperance Union and brewery interests kept liquor out of restaurants.

In 1954, Mr Groen opened the Gourmet in Auckland, serving iced water to diners as soon as they arrived.

Those who smuggled in bottles under their coats were able to use those glasses to drink alcohol.

After Gourmet then opened the Sapphire Room, which featured live music and a satirical show on the liquor laws.

If anyone can point me to a decent writeup on this history, I would love to read it. Especially anything that gives a bit more detail on how the brewers worked with the Temperance folks to knife the liquor industry.

And sometimes the baptists find the bootleggers

Greens have learned to appeal to governments’ protectionist tendencies. Earlier this year the Nature Conservancy, an American green group, took representatives of America’s National Farmers Union and the American Farmland Trust on a trip to Brazil to see how illegal forest clearance was “hurting US businesses by flooding markets with cheap and unsustainable products”. A new report from David Gardiner & Associates, a consultancy, says the 13m hectares of mostly tropical forest that are lost annually allow the large-scale and low-cost expansion of timber, cattle and agricultural production. The report argues that policies to conserve rainforests would boost American agricultural revenue by as much as $190 billion-270 billion between 2012 and 2030.

Some companies may still take the view that decisions about buying palm oil are purely a matter of cost—a comparison of the price of oil from a sustainable source with that of buying the stuff from anywhere. But as the political pressure rises, the financial calculus changes.

From The Economist.

Hey, I was worried about palm oil before it was cool - back when European government policies seemed determined to raze the rainforests through biofuel mandates. Funny how things swing.

If you're unfamiliar with Bruce Yandle's Bootleggers & Baptist's explanation of how we wind up with highly inefficient policy, do check it out.

The cost of cameras

The real cost of the soon-to-be-mandatory taxicab cameras won't be the 30-odd cents it adds to the cost of the typical cab ride.  Rather, it's the loss of surplus that will come when the World Cup hits in 2011 and jitney cabs will fail to come into the market because of the increased fixed cost of shifting your private car into taxi service.  Right now, best I'm aware, so long as you have a driver's license that permits it, nothing much stops you from slapping a sign onto your car saying "Cab" and charging to run folks around town.  We'd expect that to happen during odd spikes in demand.

We're going to have such a spike when the World Cup hits.  It's unlikely many new permanent cabs will come on-stream with the demand shock, and the temporary folks will be knocked out of the market with the camera regulations.  With lower supply elasticity, current cabs will earn rents either through fare increases, much higher turnover and shorter downtime, or increased ability to be choosy about customers.  Absent the regulation, I'd expect jitneys at airports if airport regulations allowed it and near the venue after the event.

I'd previously noted the raising rivals' costs argument here; TVHE here grasps for an alternate efficiency explanation but can't really find one.  Neither can I.  At least not a plausible one.

As the incidence of the regulation will largely fall on foreign visitors and rugby fans, I'm not too worked up about it.  So long as I don't need a cab for any reason during a demand spike.  The cameras are fairly cheap and won't do much to the baseline stock of taxicabs: that'll still move with longer term demand.  We'll just see reduced supply elasticity during odd peaks.  Fortunately my cabbing needs tend to be a- or countercyclical with respect to these events.

Cross-tasman trade in bread?

One of the things that worries me least is whether or not my bread is fortified with Folic Acid. For some things, I'd go to the barricades. This seems one of the more minor regulatory impositions; however, I can imagine it being very costly for small bakeries.

What I'm puzzled about is the National government's willingness to go carry through with the prior Labour government's policy in this area. They cite cross-Tasman trade agreements with Australia. Now, I can see the case for regulatory harmonization in some areas, weighing appropriately concerns about reduced Tiebout competition, but who trades bread across the ocean?! If efficiencies of scale in bread-making were so large relative to transportation costs, I'd expect there to be one or two big bakeries serving all of New Zealand. Instead, they're everywhere! Coupland's, the big South Island bakery, doesn't seem to ship bread even up to the North Island, never mind to Australia.

Whenever I see things like this, I start thinking about Bootleggers and Baptists. This is all of course just speculation, but folic acid supplementation really seems like the kind of thing that can be done at very low per-unit costs by the very big bakeries but at much higher per-unit costs by the little guys. There are fixed costs in redoing your recipes and testing things out. So it seems a possibility for the kind of regulation designed to raise rivals' costs. So, there's the bootleggers. The Baptists, as often the case, are the public health folks demanding that somebody think about the children.

National's candidate explanation makes no discernible sense, unless there's a massive trans-Tasman trade in bread that nobody's told me about. Bread is about the least likely thing to ship across the ocean though: low value per unit weight so bad for shipping by air, and highly perishable so bad for shipping by sea. So I'd be a bit surprised if the trade regulations were the real story. Purely speculation, but might it be the case that big bakeries have already incurred the fixed costs of rejigging production lines and are keen not to see that investment sunk without it similarly being imposed on the little guys? I see no exemption in the regs for small bakers unless they want to go purely organic.

Or maybe my paranoid goggles are on again now that semester's started and I'm again teaching Public Choice.