Canadian cautionary tales

My column in the weekend Dom went through Canada's messes in trying to make Google and Facebook subsidise Canadian newspapers. 

The Canadian Government passed Bill C-18, the Online News Act. And now, Canadians wanting to link to a news story on Facebook see this notice instead.

Earlier this week, I interviewed the University of Ottawa’s Professor Michael Geist about the problem. He’s the Canada Research Chair in Internet and E-Commerce Law and has been following C-18 more closely than anyone.

The New Zealand Initiative · Podcast: Media funding and regulation

Bill C-18 requires Facebook to pay whenever a user puts up a link to a news site. It is not a cost that Facebook can easily control or predict. It brings potentially unbounded liability.

News links are not particularly valuable to Facebook. If anything, links to news stories encourage users to click away from Facebook rather than stay on the site scrolling through pictures of relatives’ pets and children, and seeing ads delivered through Facebook while they’re there.

Facebook provided plenty of warning that they'd sooner stop allowing user links to news on their platform than be subject to unpredictable and potentially very large payments for allowing such links. 

Willie Jackson says the NZ government will have legislation in the background in case Google and Facebook don't fork over enough money to NZ media companies. It would go to arbitration. 

Listen to his interview, above-linked, and tell me this isn't a tin-pot shake-down. There can be defensible public-goods arguments for subsidising news production, but I just can't see why that ought to be funded by some tax or shake-down of tech companies.  

It sounded like he figures that Google fronting up $50 million might cover it. Who knows. 

But threat of going to arbitration with unknowable potential liability is what's had Meta pull news links in Canada. Listen to my chat with Michael Geist on it, or read his substacks. 

From my column again:

Finally, on August 1, Facebook began pulling the plug. Canadian Facebook users will no longer see news links and content. It affects not just Canadian news sites but also international news for Canadian readers, because the Online News Act can also be read as requiring payment for links to international sites too.

The big newspapers are getting exactly what they asked for. They thought that Facebook was stealing from them by linking. It’s always been nonsense – even the report commissioned by New Zealand’s Ministry of Culture and Heritage found that “digital platforms provide considerable commercial benefits to news firms”.

But, like Trump, they’d convinced themselves that they could have something for nothing. They could have media funding and make Big Tech pay for it. And it’s worked out about as well as Trumps’s wall.

Professor Geist explained that some of the biggest losers from Bill C-18 have been small independent news sites that have relied on links from Facebook for traffic.

I hope that our Minister for Broadcasting and Media, Willie Jackson, is paying attention to Canada’s cautionary tale.

Extorting payments from platforms to meet the Government’s news funding objectives isn’t just thuggish. It also doesn’t work.

 Will look forward to seeing the eventual legislation...

Afternoon roundup

The closing of the browser tabs, so the poor thing can reboot, brings some worthies:

• Work from home is proving sticky in New York. The number of workers going into NYC offices is well under half of what it was pre-Covid. They're looking to turn underused commercial skyscrapers. That's what living with Covid looks like, in places that have been living with it longer than us. I don't think removing NZ's traffic light settings are going to return us to December 2019. 
• Nice. Now do contracting for PCR testing. 
• Face it. The NIMBYs are going to try to block your development in court no matter what you do to appease them. Spread the costs of inevitable lawsuits across more dwellings.
• It's not cancel-culture, it's cancel technology. 
• The Parliamentary Commissioner for the Environment warns against locking into hydrogen. Always the danger with winner-picking: you might bet the wrong one. Why not just let ETS prices take lead?
• Oh this is neat. ORBIS gives you the travel time between places in the Roman world. Rome to Alexandria in July? 14 days by fastest route and by cheapest route. Rome to Londinium? 39 days by cheapest route; 27 days by fastest route. 
• Fix the select committees already. 
• Covid testing is cheap relative to the alternative, but costs are still adding up for businesses.
• The return of the shibboleth.
• This looks fun: Townscaper.
• NZIER's tallied up employment, contribution to GDP and such for the alcohol sector. Here's the media release from the NZ Alcohol Beverages Council, and here's the report. We have 134 distilleries! There's a lot of the usual drill in portraying employment as a benefit rather than a cost, but it's a useful compilation of a pile of stats. I expect I'll be regularly googling the blog here to re-find the link to it. 
• Paranoia about the Mont Pelerin Society. Alas, it's just not that influential. 
• Would that more public goods could be coin-operated. 

Of Free Riders and Forced Riders: America's Cup edition

We're all familiar with the typical free rider problem. If there's some public good, individual incentives to contribute towards its funding are attenuated by non-excludability: if you benefit from the good whether or not you pay for it, why pay? And so we get all kinds of arguments for government provision of various public goods.

A couple of days ago, my former Econ 224 student Brennan McDonald sagely suggested that the America's Cup bid be funded via Kickstarter. Economists know that most of the "economic benefits" case for these things is, as Shamubeel Eaqub so precisely put it, bullshit. What's left then? If the fun from a big party outweighs the cost, fine. Otherwise, not. Brennan then suggests:

If we host the next America’s Cup, Kickstarter or some other sort of crowd-funding is the only responsible choice. We should be forcing these special interest groups to put their money where their mouth is. I’m sure that a non-trivial proportion of Kiwis would donate to such a campaign. The deal with council and government could be that if you reach $XX million in voluntary contributions, we’ll streamline the resource consents necessary.

I think Brennan's largely right here. Kickstarter's pretty well placed for funding things that provide warm glow benefits, though they're not the only one. I gave some money to the Indegogo campaign for SeaSteading's current fundraising initiative; I'll get a polo shirt to wear. Actually, a third identical blue polo shirt with a nice Seasteading crest. I get warm glow and get to show affiliation, they get money, I get some prospect-theory-based utility.

Will Taylor then raises the usual objection:

@EricCrampton @brennansmacro @tvhe agree, though free-rider problems would be an issue.
— Will Taylor (@WillTaylorNZ) September 18, 2013

Yup, free-riding still could be an issue even for a decent Kickstarter. If we don't make payment mandatory, we'll get some free-rider problems from those who enjoy the benefits but refuse to pay. Sure. And I'm certain that Will here is simply raising the theoretical point rather than taking it as an argument for state funding of yacht races. However, others would use this argument as justification for state support: free-riding on a public good can provide reason for funding.

But there's a necessary complement to free-rider problems. If we do make payment mandatory through taxes, we'll get a forced rider problem: lots of people who get epsilon, zero, or negative utility from the yacht race are forced to pay for it through their taxes. I would currently be willing to pay $50 for the America's Cup to simply cease to exist; I'd pay more to abolish the Olympics. I hate the America's Cup. It clogs up tv, the Twitter Stream gets a bunch of unblockable nonsense added into it, radio blather gets worse. The America's Cup is almost intolerable being held a Pacific Ocean away; it would be unbearable in Auckland. At least it wouldn't be held in Christchurch.

Yes, I'm being ornery and maybe I'm exaggerating just a little. But worries about free-riders' benefiting from the America's Cup without paying lead people to force me to pay for stuff I do not want and the abatement of which I would view as a good. I wouldn't really push a button to abolish these things because I can't know that I wouldn't be doing more harm than good. But none of the darned boosters seem to give a hoot about whether they're doing more harm than good when they want to force everybody to pay for their parties. That's why they keep trying to frame this nonsense in "aggregate economic benefit" terms - so that they can pretend that even people who don't like the Cup get some notional benefit from it. And the merits of that argument were succinctly summarised by Shamubeel.

Free-riders can be a reason for government funding of public goods. It's possible for the aggregate true willingness-to-pay for something to exceed the cost of provision but for the payment not to be forthcoming because of non-excludability. But for stuff like the America's Cup, it's entirely plausible* that the losses from impositions on forced riders exceed, by orders of magnitude, the gains from avoiding free-rider problems. Please let's not go about creating political failures that are worse than the purported market failures they seek to solve.



* James Zucollo asks for evidence that forced rider problems will here be greater than free rider problems. I'll confess that I haven't gone around and run surveys on it. But surely the onus ought to be on those who would use force to compel my payment for a yacht race to prove that the thing creates rather than destroys value. And it's not that hard to turn Brennan's suggestion of Kickstarter into something more like Alex Tabarrok's Dominant Assurance Contracts. In that system, everyone who pledges towards the Kickstarter gets some small reward for their pledge whether or not the Kickstarter raises enough money to activate. If the campaign raises enough money, everyone has to pay up for their pledge. But because everyone is rewarded for pledging regardless of whether the project goes ahead, free-riding problems are reduced. Maybe it's not perfect as you still need some high demanders fronting a bit of cash for the up-front payments to supporters, but it's a decent way of reducing free-rider problems while avoiding forced-rider problems. That boosters of major events typically go for compulsion first suggests, to me at least, something about their expectation that individuals have more than notional demand for these kinds of things.

I'm having a rather harder time imagining how you run a Kickstarter for "No America's Cup Bid For New Zealand". Sure, I can imagine a site taking donations. But where a pro-Yacht Kickstarter would actually pay for the event, an anti-Yacht Kickstarter would have to be providing something to the governing coalition in order that they not go ahead with an America's Cup bid. It couldn't just donate to the National Party as too many potential donors would be put off by that and because Parties can't actually be seen to be selling policy. Instead it would likely have to be providing some desirable-to-the-government public good but only in the case that there's no Cup bid.

Update: I've been informed that if New Zealand wins the racing, the next America's Cup will be held in New Zealand. While I still think this is better funded by Kickstarter if it does go ahead, it's seeming increasingly likely that there might be me and maybe two other people in the country who might be annoyed by having to pay for a yacht race. A lot of people seem to be getting utils out of this thing. And while I think that this makes it way more likely that you could get a million people each shelling out $10 - $15 to support the cup in exchange for exclusive supporter t-shits, it also means that Zucollo could be right: losses from forced riders could be low. Bread and circuses are popular.

On the Definition of Public Goods

Frances Woolley had a nice post over at the Worthwhile Canadian Initiative yesterday about the textbook treatment of public goods. Her beef is with the use of national defence as the canonical example.

I have a more fundamental beef. Could we please please all agree to change the definition of what constitutes a pure public good. The classic definition is that a pure public good is one that is a) non-rivalrous in consumption, and b) non-excludable.

I want to remove the second of these from the definition. Non-rivalrousness relates to the nature of the good; non-excludability relates to what mechanisms would allow for it to be provided. This conflates two quite distinct ideas and so is not helpful for a number of reasons.

First, microeconomics courses typically move straight from the definition of a public good to finding the condition for the optimal level of its provision (the Samuelson condition in intermediate micro; or, in partial-equilibrium terms, stating that the sum of the willingness to pay should equal the marginal cost). This optimality condition is equally true of any good that is non-rivalrous in consumption, whether it be excludable or not, but that is not the impression you would get reading treatments that show the optimality conditions after imposing a definition of excludability.

Second, non-excludability is neither necessary nor sufficient for public provision to be the only or even the best means of provision: Just because a good is excludable, it does not necessarily follow that it can be profitably supplied by the private sector if there is variation in consumers’ willingness to pay and limited opportunities for price discrimination; and a good being non-excludable does not mean that it could not be provided privately through philanthropy, being tied to other goods, etc.

Third, the standard definition leaves a gaping hole in most (possibly all) textbook treatments of market failures. We typically move from the first welfare theorem (a competitive market outcome is Pareto efficient) to a listing of potential market failures under which the theorem may not hold—incomplete markets, lack of property rights, transactions costs, monopoly, asymmetric information, externalities, and public goods. If public goods are required to be non-excludable by definition, this list is missing a very important market failure—non rivalrous but excludable goods, which might be provided by a private market, but not at the efficient level.

Finally, by conflating properties relating to the provision of a good with properties relating to how it enters consumers preference functions, we add to the likelihood of students thinking that a public good is one that is provided by the government and a private good one provided by the public private sector. And this, I think, leads to exactly the problem that Frances raises: that arguments about national defence being a public good “confounds the abstract—defence, protective services—and real world military spending”.

O.K. So I am not going to be able to bring about a change in the world’s textbooks with this post, but any prospective Canterbury ECON 203 students who might be reading this, please take note: We will be using the non-standard definition next semester!

Why not Kickstarter?

Christchurch's GapFiller initiative has been, well, awesome. They started after the September 2010 quake and, since February, have had more vacant lots as potential sites. But, a fair number of those sites are now turning into Wilson's-managed parking lots; Gapfiller's having more trouble in finding venues.

A suggestion.

These projects are great and help bring foot traffic to surrounding businesses. Open up a set of GapFiller Kickstarter projects for different sites. Let surrounding businesses know about the project. Set a project goal that provides enough money to cover rent on the site. Kickstarter works via assurance contracts: if they don't raise enough for the project to go ahead, nobody pays; you only pay if enough money is raised in total for the project to be viable. And, there's plenty of opportunity for GapFiller to turn the assurance contract into a dominant assurance contract by providing "GapFiller Supporter" tags to local businesses making the pledge even if the supported project doesn't go through. Then local businesses who'd benefit from the project have some incentive to sign on quickly rather than wait around to see if everybody else donates enough to make the project viable. And the guy with a vacant lot gets at least some revenue stream.

Let me get them started. I'll chip in $25 towards any GapFiller Kickstarter campaign around the New Brighton Mall; $75 if it's a project that my 1 and/or 4 year olds would enjoy (so things that run prior to 7 PM, ideally on weekends). There are a few flattened sites around there from which to choose. It isn't much money, but that's the point of KickStarter - lots of people each putting down a little bit of money gets the project going.

And I'd probably throw a few bucks towards other things around town that I'd expect we'd enjoy.