Saturday 31 July 2010

Running the arb

I'd asked why nobody was running arbitrage between the Aussie books and iPredict on the Australian election.

At current prices, Centrebet pays $1.4 for every dollar bet on Labour to win. So, $0.7142 gets you $1 if Labour wins. iPredict charges $0.20 for a contract paying $1 if the Liberals win. You can buy both contracts together then for $0.9142. The election is three weeks away. Spending $0.9142 gets you $0.0858 less minor transaction fees in three weeks time with certainty. The one-month return is better than 9%. Currency isn't an issue because CentreBet lets me trade in $NZ, so no exchange rate risk needing separate hedging.

Bugger it, I'll run the arb if nobody else will. I'd gathered a reasonable long Libs position at iPredict just on the basis that it was relatively cheap and that iPredict prices ought move towards Aussie prices over time. I've now laid off some of that risk at CentreBet while going further long on the Libs at iPredict through a combination of shorting Labour and buying Liberal.

If Labour wins, I'm up $43. If the Liberals win, I'm up $370. Bring on the election! I can cheer for both sides!

Price discrepancies across markets offend me. I can't make money off most things that offend me.

Why are the Kiwis so optimistic about Aussie Labour relative to the Australians?

Update: Boy, do I ever wish I'd waited a couple days to lay off that risk. Ah, well.

Quote of the day

“Let’s cut to twenty-five years later, I’m still married – none of my kids have been busted for drug possession. Can Al and Tipper Gore say the same thing? I don’t think so – oh, snap!” — Twisted Sister frontman Dee Snider
Ah, remember the days of the PMRC's legal fights against Frank Zappa and Dee Snider? Tipper Gore headed up the PMRC's push for warning labels on records.

Hypothesis: folks who can't handle their own relationships or their own kids want the state to do it for them (and for everyone else); folks who can, resist such controls.

I think that Stay Hungry was the first tape I ever bought. I think that was around the third grade.

Here's Snider's testimony before Congress back in '85, along with a bit of context.

Friday 30 July 2010

Insuring the uninsurable [updated]

Via BoingBoing, an awesome insurance anecdote.

No life insurance company would touch the first astronauts. But the Apollo crews knew that they needed to do something that would leave their families in good shape were the mission to go badly. Solution?
The answer was provided by NASA in the form of 'Insurance Covers', as seen here, a number of which were given to every crew member and subsequently signed by every astronaut involved, as close to launch as possible. Its value would instantly be high, but would no doubt sky-rocket (no pun intended) should the astronauts never return; the deceased's surviving family then at least safe in the knowledge that in future they could cash-in their makeshift insurance policy if required.
Now, insurance more formally is a way of transferring wealth from a good world state to a bad one. You're poorer than you otherwise would be if all goes well, because you've paid a premium or taken some other costly action, but you're consequently much richer should the bad state eventuate.

This mechanism produces artifacts that will be worth much much more in the bad state, but don't cost much at all to produce. Folks with access to this kind of technology ought to use it regardless of whether there exists an insurer who'd insure him at actuarily fair rates. If I could, every morning, sign a postcard that would be worth a million dollars in the event of my death and cost me nothing to sign, why would I ever buy life insurance?

The article says that these covers continued through Apollo 16. I want to know why they stopped. Even if insurance became available or if NASA started providing coverage for families, I can't see why the astronauts would have stopped doing this.

Update: Duncan points me in the right direction in the comments, below.

First, the government started providing insurance for astronauts: any astronaut who was part of the military was eligible for insurance cover through the military. And, in at least the Columbia disaster, the government paid the families (see here and here). We'd expect it to be optimal for the government to directly provide insurance coverage in this kind of case anyway. But regardless of the level of insurance coverage given to the astronauts, either privately or by their employer, signing the covers would still be optimal.

Discussion here suggests that the Apollo 15 crew sold off a whole lot of unauthorized insurance covers. There was always tension about to what extent the astronauts ought be able to privately profit from their fame; ability to sell the covers at a low price in the good state of the world may have been sufficient for the government to step on the use of them as insurance against the bad state.

Thursday 29 July 2010

Progression standards (may) have consequences

I was mildly surprised to see Dave Guerin over at Education Directions reporting that international student numbers are way up for tertiary institutions in New Zealand. Looking only at the 8 universities, international student numbers are up 4% on average. Here they're down considerably, or at least they are in Commerce.

It may just be a coincidence, but Canterbury also recently introduced some reasonably strict academic progression standards. Now, I don't know how many of the excluded students were international as compared to domestic, but it previously seemed as though there were some international students who cared more about being enrolled for courses than showing up for exams; whether this had anything to do with student visa requirements is beyond my understanding. With the progression standards in place, perhaps they're not there any more. Previously, our aggregate stats showed a fair number of failing students, but a lot of these were more ghost than student. A cynic might think these to be the ideal kind of student: they pay their fees - around $15,000 per year for international students - but impose no costs.

It's of course possible that the longer term effect winds up being an increase in overall numbers, overall revenues, and a more pleasant financial situation. Especially in a long game where government funding gets tied to student performance measures. I'm not clear, however, on whether funding through the student performance component of tertiary funding is calculated only on the performance of students who draw subsidy - the domestic students - or across all students. If it's across all students and if the student performance component is large enough, then losses of non-performing international students may be optimal. I'd be surprised if non-performance by an international student would reduce the student performance funding component by more than the $15,000 or so the student pays in annual international tuition fees, but it's possible. And maybe our drop in international students while the overall sector sees reasonably strong increases is due to something else entirely. Further speculation seems unwise.

The J-curve

I'd wondered how any reasonable review of the literature could conclude other than that there's a strong J-curve in all-source mortality with alcohol consumption.

American government dietary guidelines now agree (HT: Reason). From their latest report:
Total Mortality. In most Western countries where chronic diseases such as CHD, cancer, stroke and diabetes are the primary causes of death, results from large epidemiological studies consistently show that alcohol has a favorable association with total mortality especially among middle age and older men and women. A recent updated meta-analysis of all-cause mortality demonstrated an inverse association between moderate drinking and total mortality (Di Castelnuovo, 2006). The relative risk of all-cause mortality associated with moderate drinking was approximately 0.80. The J-shaped curve, with the lowest mortality risk for men and women at the average level of one to two drinks per day, is likely due to the protective effects of moderate alcohol consumption on CHD, diabetes and ischemic stroke as summarized in this chapter.
Another interesting tidbit:
Moderate evidence suggests that compared to non-drinkers, individuals who drink moderately have a slower cognitive decline with age. Although limited, evidence suggests that heavy or binge drinking is detrimental to age-related cognitive decline.
Maybe the New Zealand Drug Foundation will someday stop considering the J-curve a myth.

Wednesday 28 July 2010

Drink driving: a research proposal

I'm rather pleased that National's ruled out a drop in the drink driving limit pending further research. I'm skeptical that a drop from 0.08 to 0.05 would pass cost benefit, but here's what it would take to convince me. It would be nice if the folks horribly aggrieved by the decision would similarly put their cards on the table: what would you deem a sensible research design, and what would it take for you to change your position?

Here's my go at it.

First, the government's already running random breath testing stations where everyone driving by point X is breath tested for blood alcohol. Start keeping data logs on all of these. We need to know the blood alcohol level of drivers on the roads at different times of the day. That gives us a base rate.

Next, collect data on all accidents: every driver after every accident attended by police is breath tested. Use this, in combination with the base rate, to get the accident rate for folks at different blood alcohol levels. But, be sure to correct for time of day: if a lot of drink driving accidents are at night, we need to know how much of this is due to drink and how much of it is due to driving at night. If folks with blood alcohol between 0.05 and 0.08 tend to be on the road late at night, and if more accidents happen late at night even for sober drivers, then just comparing overall accident rates without adjusting for these time of day effects will overstate the effect of alcohol.

Use the above to put a cost on excess accidents involving folks with increased levels of blood alcohol.

Next, we need to find the elasticity of those costs with respect to potential law changes. Because, of course, we don't know for sure how drivers will respond to the change in legislation. I would expect not much movement in the part of the curve above 0.1 and a reasonable drop in the part of the curve from .085 or so downwards, and a reasonable drop below the 0.05 level as risk averse people further reduce consumption to avoid the now lower limit. It's always annoyed me that the anti-alcohol folks on the radio harp on and on about how you can drink way more than most folks' rule-of-thumb drinking level and stay below 0.08; they figure that's evidence of how folks underestimate just how drunk people can be and still drive. I chalk it up instead to risk aversion. The rule of thumb of a couple of drinks followed by a drink an hour will keep you under 0.08 with a good padding for odd stuff like a drink being poured heavier than you'd expected, dinner having been lighter than you'd have liked, or just random variables that affect your alcohol uptake. It's like inflation targeting: you ought to target the middle of the band to avoid going over the upper bound rather than targeting the upper bound (shouting at RBNZ of 2005...).

So, how can we estimate that elasticity? Seamus suggests one mechanism: allow local authorities to set a different limit for their local jurisdiction, then just track things as per above. Another option would be to try and find comparable jurisdictions that kept similar data around the time of an alcohol limit change. The strong disadvantage of the latter approach is that those changes tend to be accompanied by stepped-up enforcement, which itself can affect drink driving rates independently of the limit. MacDoctor notes this problem as well as problems with the relative risk curves used in this kind of analysis.

Next, use the elasticity of costs with respect to legislative changes to estimate the reduction in costs with the law change.

But finally we have the really important bit - the part that the anti-alcohol campaigners always manage to leave out. We need to estimate the lost consumer surplus with the reduced drink driving limit. Lots of folks enjoy sharing a bottle of wine with dinner. A lot of them would decide to give wine a pass entirely, or to have less of it, with the rule change. Since they chose previously to consume it, they must value it. And the constraint necessarily then destroys some of that enjoyment. How do we estimate reduced consumer surplus of this sort? I'd start by looking at what happens to the restaurant and bar sector: by how much is their traffic reduced? I'd also want to look closely at data on on-licence and off-licence alcohol sales. If there's no change from trend in folks' restaurant and bar purchases but just a big increase in taxicab use, then the cost would just be the difference in cost between driving and cabbing multiplied by the increase in taxi use. If we see a drop in restaurant and bar activity, we could back out a measure of lost consumer surplus from prior estimates of price elasticity of demand for both of those, and add in the change in taxi usage as well. If we see a drop in restaurant and bar activity combined with an increase in off-licence sales, we'd need to net out the increased surplus from drinking at home from the reduced surplus from nights out. Get a total value for the surplus forgone as consequence of the limit reduction.

The policy change is ONLY worthwhile if the cost reduction from accidents forgone exceeds the reduction in surplus accruing to social drinkers whose nights out are less fun or more costly than before. And, the reduction in the drink driving limit also has to be the most efficient way of achieving those cost reductions. The government is putting in place a lot of other policies that will do a fair bit to reduce drink driving costs while not unduly burdening social drinkers over the age of 20 (but while sticking it to those lousy kids...shaking fist and zimmer frame at them...). Ignition interlocks for repeat drink drivers, zero alcohol limits while driving for folks who've demonstrated that they have a hard time saying no once they've started: these are the kinds of targeted policies that ought always be the first cut at solving a problem. I'd want to start collecting the above data after folks have had time to adjust to the more targeted measures.

I'm not sure what the Minister was reckoning would be adequate data collection. But this is how I'd start going about things if I were the guy at Treasury or Transport charged with handling things. I especially hope that they put weight on losses the policy would impose on social drinkers.

If the method above showed that the reduction in benefits to social drinkers were less than the drink driving costs avoided by reducing the drink driving limit, and if it achieved those cost reductions efficiently relative to other policies, I'd sign on for the flip to 0.05. I'd be surprised if that were the case; I'd put maybe a 20% chance that the study would come out showing the reduction to be efficient. And so I'm against it. But I'm happy to update based on evidence.

Oh: it's also interesting to note that the Cabinet insider who did very well on iPredict trading on potential minimum wage changes didn't trade on this one: a reduction in the drink driving limit was trading at iPredict at over $0.80 prior to Joyce's announcement, at which point it plunged to zero. I was moderately short at the time of announcement and so am pleased; I'd have been even more pleased had I been logged in and trading when Joyce made his announcement!

Tuesday 27 July 2010

Dynamic Programming in Sport

The dialogue in the comments to my post on red and yellow cards in rugby is the motivation for this rather geeky post on the application of dynamic programming in sport.

Dynamic programming is a wonderful mathematical tool, used a lot in economics, finance, operations research, and many other applications. In essence, it deals with situations where the value of an action can come partly from a direct payoff to that action and partly from putting oneself in a better position to gain a payoff in the future. In DP analysis, the expected value of being in a particular position (called a "state") is equal to the expected immediate payoff from taking the optimal action that state plus the expected value of being in a new state as a result of the action. The value of any state is then a function of the values in other states, which can be solved for either by working backwards in time from a well-defined end, or by a set of simultaneous equations.

DP analysis is particularly well suited to the analysis of sport, which contains many examples where the objective on any particular play is not to gain a payoff (i.e. score points) but to put oneself in a better position to score points later on.

Among many examples, DP analysis has been used to analyse whether one should kick away possession on 4th down in American footoball; to model the bevahiour of tennis players in choosing the optimal amount of agressiveness on first serves compared to second serves; and by my doctoral student, Scott Brooker, to model the trade-off between fast scoring and wicket preservation in ODI cricket. The analysis of the first of these examples was famously used by football coach and economics graduate, Bill Belichick, helping him to win three superbowls with the New England Patriots. (HT: Mankiw.)

The principles of dynamic programming are naturally understood intuitively by sportsmen, albeit with consistent sub-optimality in their applications in some contexts. It is implicit in the old rugby adage to never pass to a player in a worse position than oneself. And I believe that the famous (or notorious) long-ball game that Graeme Taylor brought to the Watford soccer team in the 1970s was motivated by the obeservation that almost all goals in English club games were socred within a very small number of passes of the team gaining posession. In DP terms, this translates as the value of having possession at your end of the field if you play a short-passing game is less than the value of the opposition having posession at its end, so you might as well just kick for territory not posession.

So what is the relevance of dynamic programming to my suggested rugby rule change?

I suggested a rule change that would increase the value of having posession inside the opposition 22, since the payoff to taking a shot at goal from a penalty would increase. The comments were then that the rule change would have no effect on infringing further out from the goal line, since there is no feasible option to take a shot at goal. This is not correct, however. Let's say you are awarded a penalty on the halfway line, and don't have a kicker you would trust to kick for goal from there. The best option with and without the rule change would be to kick for touch from which there is a roughly 90% chance you will regain possession at the line-out. But that doesn't mean that a penalty has the same benefit as before. Let's say a kick for touch cna advance your team 25 metres, so a penalty at halfway would earn you almost certain posession around the opposition 22. If the cost of infringing is raised inside your own 22, then the valuye of holding posession is increased, and hence so is the value of a penatly on halfway. Similarly, the value of a penalty on your own 22 is increased (albeit with diminishing returns) as it enables a team to get almost-certain posession at the half-way line, etc.

Maybe they should be teaching dynamic programming at our sports academies?

Sunday 25 July 2010

Chinese communism

William Watson points to the latest Pew survey on global attitudes to free markets.
China tops the scale in support of the free market. Germany also beats the United States. As does Brazil. And France is only one point behind the US.

And while 93% of Chinese surveyed say trade is a good thing, only 66% of Americans agreed.

If they ever re-make Red Dawn with China invading the US, which side do we cheer for?

Saturday 24 July 2010

Drink drive limits

Farrar reports that Cabinet will soon be deciding whether to drop the drink driving limit from 0.08 to 0.05 or to do a bit more research, having police test all drivers involved in an accident to get a picture of how many accidents involve folks in the 0.05-0.08 range.

I like the call for more research, but just knowing how many drivers are in the 0.05 to 0.08 range isn't enough. You have to know what proportion of all drivers on the road are in that bracket if you want to know whether the accident rate is substantially higher for that class of drivers. This could be done by keeping all the data from roadside breath tests when the police set up their alcohol checkpoints. Or, under a few assumptions about the underlying distribution, you could back it out from the accident rate. How? Well, the proportion of accidents involving one driver in the 0.05-0.08 range rises with the proportion of such drivers on the road, but the proportion of accidents involving TWO drivers in that range rises with the square of the proportion of those drivers on the road. Steve Levitt used that a while back to estimate the number of drunks on the road in the States; it wouldn't be terribly difficult to replicate that analysis here if the underlying data were available. I'd be curious to see what the results here would look like.

I fear, though, that research wouldn't matter at all for the folks wanting to reduce the limit to 0.05. Their counterargument, which can't easily be falsified, will be that folks who get to 0.06 are more likely then to decide to get to 0.12; with a limit at 0.05, they'll never get to the point at which the craziness sets in and the next three drinks become unavoidable. And should the limit drop to 0.05 with no effect on the number of accidents in the 0.1 and up range, that will just mean that the evil alcohol marketers have become more crafty in getting their message across, not that the wowsers' argument was wrong in the first place. Or that the limit should really have been 0.03, or 0.01, because clearly 0.05 was too high.

Meanwhile we still hear reports of folks who've finished a temporary licence suspension after their nth drink driving conviction getting their licence back without having undergone any kind of rehab and without any kind of conditions like ignition interlocks. Because it isn't about stopping the repeat drink drivers; it's about stopping social drinkers from drinking socially.

iPredict's saying there's an 82% chance of a reduction in the drink driving limit. I'm short, having sold around $0.86. But I'd be buying at $0.75.

StatsCan and mandatory censuses

The head of Statistics Canada has resigned over the Canadian government's switch from a mandatory long form census on a subsample of respondents to a voluntary long form census. He's certainly right that the two are not easily comparable; there's going to be a big break in StatsCan data going forward that's going to be pretty hard to adjust for in any time series work.

I would have loved to have seen, conditional on a move to a voluntary census, a transition year in which half of long form respondents are given the mandatory form while a treatment group gets the voluntary form. Then we could have at least some measure of the bias induced by the shift and, under an assumption that that bias doesn't change over time, a way of adjusting long form data after the change to make it commensurable with the earlier data series.

While I'm warmly reminded of tales of the Hong Kong governor's refusal to collect statistics that could be used back in London to direct things in Hong Kong, it's not terribly plausible that that's what's here going on.

Of course, even if the census is mandatory, there are always options for folks who don't want to be helpful. I'd link to the video, but the usual ridiculous geographic copyright restrictions prevent my doing so. Americans can see it here: Betty White's take on the Walken classic...

Friday 23 July 2010

Inevitable serfdom

Andrew Sullivan picks up on Farrant and McPhail's argument, via Barkley Rosser. Boettke also weighs in.

Anyway, they [Farrant & McPhail] say that Samuelson was right all along, and that one can find passages in RTS where Hayek certainly looks like he is making the strong version of the slippery slope argument that he later realized was an embarrassment, even if it is probably the source of the renewed sales. Thus, Farrant and McPhail would say that Limbaugh and Beck are more on the money here than Caldwell, even if they are ignoring Hayek's call for social insurance (a clear sign that he did not view any and all such moves as going onto the slippery slope).
(in comments} The fact is that Hayek says one thing in one place, but then says things in other places that appear to contradict what he said in that first place. This is part of why Samuelson and others have had trouble taking Hayek seriously when he got all in a dither over such people suggesting he was making the slippery slope argument. In some places he denies doing so, but in other places he sure as heck looks like he is making it. Needless to say, Hayek is hardly the first or only prominent economist to find himself contradicting himself, especially over long periods of time, and Hayek's views on some of these mattters did change over the course of his long life.
Whatever Hayek meant, it's best to read "The Road to Serfdom" as a rhetorical exercise that can ground your thinking about the motivation behind socialist policies. It's worst to think of it as a playbook for how this stuff plays out -- i.e., passing social insurance leads inexorably to tyranny. And it's easy to whine about Glenn Beck pounding home the wrong lesson by having his viewers buy the book. But let's remember who these viewers are. They already think that modest social insurance of the type a European Christian Democrat party might introduce is going to bring about serfdom. Sending these viewers to a non-crazy (that is, non-Skousen) text is one of the best public services Beck has performed.
Boettke (from comments, where his best stuff often winds up):
Barkley's position that Hayek's warning of the slippery slope has been proven bunk runs into a problem -- what Ulrich Witt referred to as the "endogenous public choice theorist.". In other words, the warning itself altered the path.

Hayek does distinguish between hot socialism which is more or less Soviet and Nazi, and cold socialism which is milder forms of social democracy. But I believe the commentators are missing Hayek's limits on democratic agreement argument. When cold socialist policies are pushed beyond general rules, the ability to get democratic consensus collapses. Then we are faced by a Hayekian form of Arrow's theorem; I first made this argument in my EEJ paper (1995) and then again in more detail in a paper with Pete Leeson on Hayek, Arrow, and Democratic Decision-Making.

So Hayek's analysis is applicable to both hot and cold socialism and cold socialism has exhibited many of the problems predicted. As Lavoie argued in National Economic Planning (1985), one of the real issues is militarization of the economy. This result is not only a result of bad intentions, but the logic of the situation -- check out the Wash Post series on the secret military world in the US since 9/11.

Commitment to the generality norm plus the endogenous process of heeding the warning, results in cold socialism not becoming hot socialism.
The whole comments thread over at Boettke's post is excellent, with Koppl, Rosser, Ebeling and others arguing the case.

Boettke wonders if my post has an inconsistency in conflating inevitability with very high probability. What I'd been, perhaps hamfistedly, trying to say was that Beck and the like are making an inevitability argument, that a very reasonable interpretation of RTS is that there's a very high probability that we can't avoid serfdom if we start down the road, and that that high probability is closer to Beck's reading of Hayek than to readings that take Hayek as offering only a cautionary tale. I follow Farrant in finding the inevitability / very high probability reading the more natural reading of RTS, though Hayek, as Rosser points out, does contradict himself more than a few times.

I'm also a bit curious about the endogenous public choice claim. I can buy that RTS acted as a cautionary tale, and may have affected folks decisions to pull back from planning in the mid 20th century. But isn't that kinda like the claims that, but for all the Y2K fearmongering, the world really would have ended with planes falling from the sky and electricity shutting down on 1 January 2000? As I'd noted last go-round:
I really like Hayek's "The Use of Knowledge in Society". The Road to Serfdom provides a nice explanation of why central planning is incompatible with personal liberty. But reading beyond that, following what Hayek seems to have intended, in reckoning that every divergence from market liberalism runs great risk of totalitarianism, is simply wrong. It's the right reading of Hayek, but the wrong reading of the world.
Arguing that RTS was critical in stopping the Road to Serfdom I think requires that planners, when push came to shove, would have preferred totalitarianism to liberalism, but only would have held that preference after getting past some critical stopping point.

If planners preferred liberalism to totalitarianism all along, the RTS mechanism fails and we'd just see the retreat from planning experienced in the mid twentieth century regardless of the publication of RTS. This is consistent with both the outrage of western social democrats at the argument made in RTS, and with the path in the real world.

If planners always preferred totalitarianism to liberalism, then RTS could never have made a difference.

It's only in the case that planner preferences between totalitarianism and liberalism shift as we move along the path to socialism that the publication of RTS could have prevented further moves. And the only plausible mechanism for this is Hayek's "Why the worst get on top": otherwise, you're having to specify that the planners' individual preferences shift. But that mechanism is inconsistent with the real world experience of socialism in the twentieth century. In places that went for full-blown socialism, the worst started on top. In places that retreated, the worst never got to the top. And, I can't think of a single case that's consistent with the RTS mechanism: well-intentioned planners being supplanted by nasty folks. Lenin was terrible, he started on top. Pol Pot was terrible, he started on top. Mao was terrible, he started on top. Even if RTS cautioned some Western planners against going farther, I'd love to hear of a single case that followed the basic Hayek mechanism: failures of planning (where planning was led by the well-intentioned) followed by the rise of the demagogue. In all the ones I can think of, the demagogue starts on top having won command of the communist party before the communist party took over the country, and the communist party hardly takes over because of the failures of an existing welfare state's planning apparatus.

Thursday 22 July 2010

BP and academic firewalls

Inside Higher Ed now has more on BP's contracts.
On Friday, July 16, Ben Raines, a reporter for Mobile, Alabama’s Press-Register, published a story detailing extensive efforts by BP to employ scientists engaged in (or likely to engage in) research about the massive oil spill in the Gulf of Mexico. Inside Higher Ed has since conducted independent interviews for its own coverage. The contracts offered by the giant company, according to both sources, restrict the scientists from publishing research results, sharing them with other scientists, or even talking about them for as long as three years, a serious restraint in the midst of an ongoing crisis.

NZ Local Politics

A roundup of current prices for the various Mayoral races.

One of these incumbents is not like the others.

One of these incumbents, on the front page of today's Christchurch Press, when responding to questions about his wife's role in Council business - which seems entirely unproblematic to me - responded with this bit:

Mirror, mirror on the wall, who's the prettiest mayoress of them all?

Christchurch Mayor Bob Parker has made the bold claim that his wife, Jo Nicholls-Parker, is "the most attractive mayoress in the whole land".

Parker made the comments while defending Nicholls-Parker's involvement in his mayoral duties, paying tribute to her dress-sense and her appearance.

"She dresses in a really fashionable way which reflects on the younger spirit in the city ... I think she is the most attractive mayoress in the whole land, if not the whole of the world."
The Mayoress has taken on a more prominent "First Lady" role, without pay; I can't see any possible problem with that. But turning the non-story into "who has the hottest wife" shows a level of skill commensurate with the trading price. You might think he's given up on playing the voters and instead is targeting a more domestic audience. Shadbolt shows a bit more tact:
Invercargill Mayor Tim Shadbolt, whose partner Asha Dutt has worked as a model, was reluctant to be drawn into a battle of the mayoresses.

"It's probably more an indication of his appreciation of the work she does," he said.

"How do you judge? I haven't met all the others."

Shadbolt said he was prepared to give Parker the benefit of the doubt, given his tough re-election battle with Jim Anderton. "He's probably feeling a bit jaundiced at the moment, so I think I'll let him have this one."
Yes, I am just mad that I bought a pile of Parker shares at a rather higher price.

Trading prices on the mayoral race have gotten a bit of local press. But I'm always a bit disappointed that they're not mentioned more often in stories on local elections - it's not like there are frequent polling results that can be used in the alternative.

Ladders and measurement error

I'd noted yesterday a rather nice piece looking at SES and health outcomes showing that self-perceived status does more to drive health outcomes in one experiment than do objective markers of health status. The result could reflect measurement error in the objective markers or it could reflect that folks place different weights on different aspects of status when deciding on their self-perceived status.

LemmusLemmus pointed out in the comments there that the self-perceived status question was prefaced by a primer having respondents think about their income, education and occupation: "where they stand compared to other persons in the United States in terms of income, education, and occupation". So it's relatively weak support for the multiple ladders hypothesis which, if respondents took the priming seriously, would then only reflect different weightings across those three potential status components. The test isn't strong enough to distinguish much between measurement error and multiple status ladders (or, rather, differentially weighted status ladders).

So an interesting test of measurement error versus more ladders would be a repeating of the experiment but priming different respondents with different versions of the the question above. For some, no primer would be given. For others, the three above. And for a third group, a much broader set. If the no-primer or thick-primer treatments strengthened the effect of self-perceived status relative to the objective markers, then that supports the multiple ladders hypothesis. If self-perceived status does best when the primer relates directly to the objective measures (as opposed to a no primer or thick primer version), then it's probably measurement error.

Little chance the study would be repeated in this way, but at least it's testable in principle.

Wednesday 21 July 2010

Firewalls in consulting

In an excellent piece of reporting, Inside Higher Ed examines BP's efforts to contract some academics to help in damage assessment from the Gulf oil spill.
As an assistant professor of coastal sciences at the University of Southern Mississippi, Griffit says he’s been eager to assist in the restoration efforts taking shape in the region. So when lawyers representing BP came to Griffit with an offer -- help us assess the damage and find a way to restore what’s been destroyed -- Griffit says the option was “initially very attractive” to him and some of his colleagues.

“If we were on the inside, we knew we could have some effect on BP,” says Griffit, who is stationed at the university’s Gulf Coast Research Laboratory, in Ocean Springs, Miss. “And after talking with some of the lawyers involved, we all saw it was a nice idea.”

Griffit now thinks he was perhaps a bit “naïve.” After a single three-hour meeting with BP representatives several weeks ago, Griffit and several other professors resigned from consulting positions they’d held only briefly. The faculty members began feeling anxious about the appearance of siding with BP, particularly when company officials mentioned that the professors would probably be called to testify on the company’s behalf as lawsuits inevitably unfold.

“We’re all employees of the state of Mississippi, and none of us really felt comfortable about testifying on the other side -- even if what we said was scientifically accurate,” Griffit says.
This isn't good. Faculty shouldn't feel constrained against taking any line of research, and especially shouldn't feel constrained against acting as expert witness against the state. Think any of them would have felt this constraint if serving as expert witness for anti-tobacco groups against inadequate tobacco regulation?

But BP hasn't helped itself. Anybody taking on this kind of work would have to insist on very strict firewalls between the funder and the researchers: they give the money, the researchers go where the science takes them and have full freedom to publish all data and results. This kind of arrangement ought to be in both parties' interest: why would anybody believe anything that's funded by someone with an interest in the outcome unless those kinds of firewalls were in place? But, instead, BP had some nasty confidentiality provisions in their contracts:
News of BP’s efforts to secure the consulting services of university faculty spread rapidly over the weekend, following a report in the Press-Register of Mobile, Ala., that provided details from contracts being offered to scientists. The newspaper said it obtained a copy of such a contract, noting that the agreement restricted consultants from discussing or publishing their research for at least the next three years.

At a time when many have already accused BP of low-balling or playing down the extent of the oil spill’s impact, many denounced the notion of professors gathering potentially damaging data for the company and letting BP sit on it for years.
This then makes it a one-way bet for BP. Good results get published, bad results are buried. And so,
A number of professors have backed out of their agreements with BP in recent weeks, even before the Press-Register’s article appeared, several administrators told Inside Higher Ed Monday. The reasons vary from ethical concerns about restrictions on the publication of data to the stark realization that BP’s demands on faculty time for a project of this magnitude are simply more than a working professor can offer in good faith.
Yup. I wouldn't sign on for anything that looked like it would provide that kind of one-way bet either. But, it's not just industry that can distort results - always watch for one-sided skepticism. Again, from the Inside Higher Ed piece:
But Chris D’Elia, dean of Louisiana State University’s School of Coast and Environment, says it’s an oversimplification to see work with BP as the only potential conflict for faculty responding to the oil spill. Federal agencies are also seeking out LSU faculty, and they have a vested interest in research that will raise the price tag on the clean-up, D’Elia said.

“You’re working for a side with a financial interest [either way],” he says. “The federal government is trying to maximize the damage assessment for obvious reasons, and the oil companies are trying to minimize it.”

“But there’s no doubt about it,” he adds. “You’re much more on the White Knight side if you’re with the feds, the aggrieved party.”
And, working for the dark side has its price:
William E. Hawkins, director of Southern Mississippi’s Gulf Coast Research Laboratory, says professors courted by the company began hearing from colleagues that teaming up with BP might affect their future ability to secure federal and state grants. Would a scientist who provided data to BP in this instance lose credibility for future spill research funding from government agencies?

“I think everybody’s kind of feeling their way through this, and I think our researchers believed it would be better for their careers that they have access to the funding that would come through the public,” Hawkins says.
Government is the giant gorilla for research funding everywhere in the world. Doing the wrong kind of work can dry out that funding source, or even get you blacklisted. Again, beware the one-sided skepticism.

BP shot itself in the foot by requiring contracts that honest academics would have a hard time signing. What happened when the University of South Alabama suggested more reasonable contractual conditions?
Crozier did, however, attend a meeting between South Alabama officials and lawyers representing BP. The university laid out strict parameters for any potential partnership, including complete control over the use of data collected by faculty. They’ve not heard back from BP since.
Nobody comes out of this looking good. Academics work in a climate where, even if they were protected by contractual firewalls against BP influencing their work, they'd still be tagged as the "BP Guy" and have problems in getting federal funding for other work; government research grants are where the big money tends to be. And BP set up contracts that would make non-credible the work done by the academics signing on. Disappointing all around.

Actual and perceived status

Robin Hanson pointed back in May to a nice study showing that it isn't SES that determines health outcomes so much as perceived SES. How? A bunch of folks were put into a lab for a week, were first asked a bunch of questions about their income, education and so on, then were exposed to the common cold virus. Then, they were kept in the lab for five days under quarantine. Income and education didn't affect likelihood of catching a cold. But self-perceived SES did matter. More than forty percent of folks in the lowest third of the SES distribution caught colds; about twenty percent of folks in the highest SES did.

Now, why might that be?
Why would levels of subjective status differ substantially from status inferred from the objective markers? A number of explanations are based on the possibility that the subjective status measure just does a better job of measuring social standing. First, subjective social status may reflect the success or failure to meet one’s educational potential, while the objective measures do not. Second, subjective status allows the respondent to weigh income, education, and occupation in proportion to the importance of each marker in the respondent’s own social context. For example, education may be a more important determinant of status for a college professor and income for an entrepreneur. [emphasis added] Third, the objective measures of SES are crude and the ladder may be capturing finer gradations of the objective indicators than the objective markers. For example, years of education does not distinguish between the quality and status of the school attended (e.g., community college versus Ivy League school), but the respondents know that education scores have different meanings depending on school. Finally, subjective ratings probably capture a broader range of SES markers, including wealth, living locations and conditions, and parental SES, that are not measured by our more limited range of objective markers.
I'd take the measurement error response reasonably seriously. But I'd really love to see work helping to distinguish the second hypothesis from the third. Unfortunately, their data was collected 2000-2004, so it would be impossible to go back to the subjects with a couple of follow-up questions. I'd ask subjects where they went to school and for their zip-plus-four at the time they were in the study. The former would allow tighter control for objective education; the latter, for neighbourhood characteristics that would correlate with other unmeasured parts of SES.

What I really like about the approach in the paper is that it mostly avoids the problems of IQ as a confounding variable. Many studies finding bad health outcomes from low status control for education but few control for IQ. Linda Gottfredson finds IQ, when it's available, strongly reduces the effect of income on health status. Why? IQ determines both income and health behaviours. But in this case, there isn't really much that IQ can do in helping the quarantined subjects avoid catching the cold to which they've been exposed.

If people are status-seeking and they seek status over more dimensions than just income, then income redistribution doesn't really help in equalizing status outcomes as status-seeking behaviour then just pushes onto other margins and we're still left with inequality leading to status-based health differences. Instead, facilitating the creation of more ladders lets more folks achieve higher subjective status.

In any case, we ought be upweighting the likelihood that we're in the choose-your-ladder world.

Tuesday 20 July 2010

Accountants and Activism

Nandor Tanczos, former NZ Green MP, questions potential changes in New Zealand's tertiary funding model, noting:
Right now we need sociologists more than we need scientists. We need philosophers more than we need forex traders. We need activists far more than we need accountants. [emphasis added] There has probably never been a more important time in human history than now to stop and have a good think about where we are going, as we begin to reach the environmental limits of our planet. How predictable, then, that our government should this year launch a renewed attack on universities, and in particular on those disciplines that might help us to do so.
Now, I don't agree with his analysis. If we needed sociologists more than scientists, their wages would be bid up and more folks would then choose sociology over the sciences, and similarly for philosophy versus foreign exchange traders, unless there were strong and differential external benefits across training fields. I'm strictly agnostic about the relative merits of the different professions. But the burden of proof ought to be on the folks positing strong positive externalities for any particular profession over another.

More interesting is his contrasting of accountants with activists, given my morning email inbox. Nandor could perhaps update his views about the extent to which the sets might overlap.
You are warmly invited to attend the 5th Annual Pallot Memorial Lecture, ‘The Significance of Public Sector Accounting as a Form of Constrained Communication’. The lecture will be delivered by Professor Christine Cooper, from the University of Strathclyde. Event details and an outline of the seminar are provided below.

Date: Monday 9th August 2010, 5.30pm – 6.30pm. Refreshments to follow
Venue: Coppertop - Level 2, Commerce Building, University of Canterbury
RSVP: By 4th August to or phone +64 3 364 3882 or reply to this email

Drinks, canapés and an opportunity to network with other UC staff and members of the business community will follow this lecture. We look forward to seeing you on 9th August.


It is now well understood that the public sector should produce information which renders it transparent and accountable. Accountability, at first sight, seems to be a desirable characteristic. This lecture discusses the possibility that accountability is extremely complex and that the production of the finest set of public sector accounts cannot make the public sector accountable.


Christine Cooper is a Professor of Accounting at the University of Strathclyde in Glasgow Scotland. Her research interests are concerned with how accounting information or accounting’s theoretical frameworks impact upon our decision making or actions. This has included the audit expectations gap, social and environmental accounting, accounting within trade unions, privatization, taxation, key performance indicators in the public sector, insolvency and taxation. For each of these arenas, Christine has drawn upon various contemporary social theories to inform her work. Christine is co-editor of Critical Perspective on Accounting. Critical Perspectives on Accounting aims to provide a forum for the growing number of accounting researchers and practitioners who realize that conventional theory and practice is ill-suited to the challenges of the modern environment, and that accounting practices and corporate behaviour are inextricably connected with many allocative, distributive, social, and ecological problems of our era. Christine also sits on the editorial boards of several other journals and is a trustee of the Association for Accountancy and Business Affairs which works for an open and democratic society.
Cooper's faculty page is here.

Environmental, social, and triple-bottom-line accounting methods are an area of growing research focus in the Accounting department here at Canterbury.

The Pallot Lecture is Accounting's counterpart to our Condliffe Lecture. Locals attending those two lecture series, along with Management's Hight Lecture, would fully appreciate the great diversity within our College of Business and Economics.

Monday 19 July 2010

Seeing Red (and Yellow) About Rugby Rules

The All Blacks have played five tests so far this season, and we have seen four cards (1 red, three yellow). I have thought for years, that sin-binnings and sendings-off were bad for the game. Since all four of the cards in the All Black tests this year have gone in New Zealand’s favour, I can vent and not be accused of sour grapes.

The simple fact is that 15 on 14 rugby is not a proper contest in games involving the top teams; even 10 minutes can be enough to settle a game and make the remaining 70 minutes irrelevant. The problem is not with the referees; Roussouw’s yellow in the weekend was harsh, but the remaining three this year were clear cut given the laws as currently written. The problem is with the laws themselves. There needs to be a way of dealing with foul play and deliberate infringement that doesn’t require turning games into a farce. It would take only a couple of minor tweaks of the laws to do this.

First, players guilty of clear foul play should be penalised and sent off, but a replacement should be allowed. If necessary, the subsequent penalties imposed at a judicial hearing can be increased if that is needed to create the appropriate disincentives.

To deal with professional fouls, the on-field costs of infringements need to be increased. It is probably no coincidence that the extent of professional fouls has increased over time as the value of a try has increased (from 3 to 4 to 5 points since 1972) relative to that of a penalty. The lawmakers will not want to change the balance back, as they want to encourage teams to be constructive in their use of possession. So we need a different way of increasing the cost to a team of deliberate infringement.

My suggestion is that when a team is awarded a penalty, the clock should stop and stay stopped if the team takes a shot at goal. In that case, play should be restarted with a scrum at the point of infringement, whether or not the kick at goal is successful. That is, if a team is infringes when the opposition is attacking close to the goal line, the cost is the likelihood of allowing a kick for three points, but with no offsetting benefit of regaining possession and field position with a kick-off from halfway, and no opportunity to use the infringement to run time off the clock when holding on to a narrow (but more than 3-point) lead. In the event of a penalty try, teams would have the option of taking the kick at goal and ensuing scrum, or the certain 5 points and centre-field conversion.

I would expect that these rule changes would result in both less infringement, and more games being decided by tries rather than penalties. But on this blog, of course, the question is, Would there be any offsetting behaviour that produced undesirable consequences? Comments welcome.

Sunday 18 July 2010

Obscenity: In defense of Stagliano [updated]

Update: The case was dropped on technicalities due to an incompetent prosecution. Original post follows below.

I'm rather glad that the New Zealand Censor's office found that the issue of Norml News in which I had a short article was not a prohibited publication.

Surprisingly enough, things seem to be getting worse in the States, First Amendment or not. There, the anti-porn crusaders are out. I thought this sort of nonsense was going to end with a Democrat President facing a Democrat Congress. Apparently not. There's a pretty simple solution for folks who don't want to watch pornography: don't watch pornography. There's a pretty simple solution for folks worried about their kids watching naughty things on the home computers: any of the numerous censor software or censor ISPs that are out there. And, there's a pretty simple solution for folks worried about what other consenting adults do in front of a camera or what other folks then watch them do: fix your inefficient utility function. You'll be a more efficient producer of utility if you stop getting disutility from things that don't affect you directly.

From ReasonTV's blurb about the video above (which does contain some performers clothed in lingerie, your call whether that's worksafe for you):

"When did women exchanging bodily fluids and a little light bondage become the most obscene thing in the land?" asks Constance Penley, a University of California at Santa Barbara professor well-known for her classes on pornography.

That question may be answered this week when porn producer John Stagliano's federal obscenity trial enters its second week. Stagliano faces up to 32 years in prison for distributing the adult films Milk Nymphos, Storm Squirters 2: Target Practice, and a promo reel for a trailer for Belladonna's Fetish Fanatic Five via his website for Evil Angel Productions (adults only).

(Full disclosure: Stagliano has been a donor to Reason Foundation, the nonprofit that publishes this website.)

Emboldened by the Stagliano trial, a group of anti-pornography organizations recently held an event to demand a new "War on Pornography." "We have a war on pornography and we're going to win it," declares Patrick Trueman, a former Department of Justice prosecutor and leader of the War on Pornography Coalition. "The pornographers know exactly what they're doing and they're not going to respond to anything but the stick of the law," adds Donna Rice Hughes, founder of Enough is Enough.

But speaks with others, including an adult film actress and fetish film director, who promise to resist the anti-porn crusaders. And there is a bigger issue at stake, says Marty Klein, author of America's War on Sex: The Attack on Law, Lust and Liberty. "The right to see South Park, may actually depend on the right to watch Butt Busters 3," says Klein. "If people want to have the right to do what they want to do, they have to protect the rights of other people to do what other people want to do."

"Obscenity vs. Freedom of Expression" is produced and edited by Hawk Jensen, field produced by Dan Hayes, with camera work by Dan Hayes, Hawk Jensen, Alex Manning, Joshua Swain and Zach Weissmueller. Production Assistants are Sam Corcos and Jack Gillespie. Approximately 7.30 minutes.

For a 2008 interview about the case, 
go here:

To watch's Lady Chatterley, Milk Nymphos, & John Stagliano, 
go here:

Go to for downloadable versions of this and all our videos, and subscribe to's YouTube channel to receive automatic notification when new material goes live.

The Washington City Paper summarizes the legal arguments here. See also Kuznicki at the Washington Examiner.

The blue movie business has plenty of trouble besides censorship issues: the erosion of copyright. Folks feeling guilty about viewing Stagliano's work without paying for it may consider contributing to his defence fund.

Saturday 17 July 2010

Cryonics: Poland 1984 edition

SCTV was wrong. Horribly wrong. For better or worse, my expectations of Soviet-bloc television were set by SCTV's caricature. Like What Fits Into Russia:

and Don't feed or give matches to the Uzbecs (which may now seem less funny but more prescient)

But, I was wrong. SCTV led me astray. Via Lubos Motl, a Polish movie, all up on YouTube, from 1984.

Here's the playlist with the movie split into 14 parts. Says Motl:
Spoilers follow below...

In 1991, two men are hibernated in the context of a scientific experiment. The plan was that they would be waken up in 3 years, in 1994. However, a war begins and leads to the elimination of all males.

The Gentlemen are waken up in 2044 when the world is controlled by a female-only, feminist, politically correct, totalitarian society that was partly designed as a parody of the communist system that existed in Poland when the movie was shot.

The female apparatchiks teach all the girls how the women used to be discriminated against by the males before the males were justly removed from the world. Einstein was a woman, too.

Everyone has to live under the ground as well. That's because of the high radioactivity in the atmosphere. At least that's what everyone is told.

The life of is difficult for the two men - one of them is more formal, the other one is very informal. ;-) Their main ally turns out to be Ms Lamia Reno (of Archeo), a sensitive and reasonable blonde woman whose lust is stronger than the anti-sex-drive hormonal pills. ;-)

It turns out that there's something unexpectedly wrong - or right - with Ms Excellency, too. You can guess whether the wisdom about the toxicity of the atmosphere is right or not: the propaganda in the 2044 society is so similar to the man-made global warming! The men choose freedom - a short life in the radioactive atmosphere - over the crippled life in the feminist society. Lamia helps them to get out of the Hell.

But a few nice surprises await them above the ground and the men ultimately manage to fix the world at the very end and boys start to be born in the test-tubes again.
I'll second Lubos's recommendation, though I've only watched the first three parts so far. This isn't what I was expecting from Soviet-bloc television. I knew that the reforms started early in Poland, but there's a sense of real freedom in these clips. One of the cryonauts objects strenuously to their captors' eavesdropping on private conversations; there are objections to official re-writing of history. One cryonaut laments that he, put to sleep in 1991, had been due to receive an apartment in 1998. And the production value isn't far from most American stuff of similar age. I'm impressed.

There are passing shots of female nudity. Consequently, American television censors would probably not allow to be broadcast a film that was available under Communism in Poland. Think about that.

Drugs and welfare

One of the more common objections to drug legalization is that, given the welfare state, folks would then have far too strong a risk of free riding off the state while being a drug user. It's not a crazy objection. Of course, if what we really worried about was that folks on welfare might take drugs, or that working folks might "drop out", we'd put in place policies like making receipt of welfare conditional on passing random drug tests.

And it even turns out that those latter policies work. Hope Corman is a visiting Erskine Fellow in our department and has passed along one of her recent working papers.
Exploiting changes in welfare policy across states and over time and comparing relevant population subgroups within an econometric difference-in-differences framework, we estimate the causal effects of welfare reform on adult women’s illicit drug use from 1992 to 2002, the period during which welfare reform unfolded in the U.S. The analyses are based on all available and appropriate national datasets, each offering unique strengths and measuring a different drug-related outcome. We investigate self-reported illicit drug use (from the National Surveys on Drug Use and Health), drug-related prison admissions (from the National Corrections Reporting Program), drug-related arrests (from the Uniform Crime Reports), drug-related treatment admissions (from the Treatment Episode Data Set), and drug-related emergency room episodes (from the Drug Abuse Warning Network). We find robust and compelling evidence that welfare reform led to declines in illicit drug use and increases in drug treatment among women at risk for relying on welfare, and some evidence that the effects operate, at least in part, through both TANF drug sanctions and work incentives.
Corman and her coauthors estimate that welfare reform reduced recipients' drug use by 14%. TANF also reduced drug related emergency room visits by about 10%. States with stronger welfare sanctions for drug use saw larger declines in drug use than states with weaker incentives.

Hope gives the usual caveats in the paper about how further work would be necessary before drawing policy conclusions, but I'm going to do it anyway. Would there be any legs on a policy that would combine marijuana legalization with welfare reform and increased funding for drug treatment centres for countries like New Zealand that haven't yet reformed their welfare systems? Drugs would then be legal for the folks not on a benefit, who would have reasonable incentives to avoid levels of consumption that would induce dropping from the labour market; folks on a benefit would be no worse off with respect to drug law than they are now. It sounds like the kind of compromise that could bring the bluer parts of National towards marijuana law reform.

Friday 16 July 2010

Yeah, but will it get you a job? [updated (2)]

The Minister for Tertiary Education here in Kiwiland is mulling over the idea of having university funding be partially contingent on whether graduates are able to get jobs after university.

If we now reckon the point of universities is the increased earning power of graduates, there's little case for state funding of university students beyond potentially having government backed loans (at market interest rates or a bit higher) because of the potential for market failure where human capital cannot serve as collateral. Of course, universities serve multiple goals. But the more emphasis is placed on this one, the weaker is the overall case for public funding.

Imagine that you're an admissions officer at one of the Kiwi universities. Dikat comes through that funding outcomes will depend on proportion of graduates who wind up getting jobs. You might find yourself with incentive to turn down the folks you reckon are less likely to wind up getting jobs. At least that's what I'd do.

On the plus side, it would be very good to start getting some data on where graduates wind up. A lot of students come in to Commerce because they reckon it provides better employment chances than Arts. I think they underestimate the value of the meatier parts of the Arts and overestimate the value of the fluffier parts of Commerce. But I'd love to see what the actual numbers look like.

Update: Matt over at TVHE argues that tertiary ed funding ought to be based on external benefits, that it's plausible that external benefits vary across disciplines, and that those benefits may or may not be correlated with work placement.

I don't necessarily disagree. But it's unlikely that it's the education that provides the benefit; rather, it would be whatever's done with the degree afterwards, right? Shouldn't we then just provide the subsidy for the provision of the service providing the positive external effect, and let folks sort out for themselves whether or not to take the training? So suppose that you want to argue that primary school teachers provide all kinds of value over and above what they're paid. Taking that claim as given, isn't it more efficient to then just provide a wage subsidy for primary teachers rather than to provide subsidized training? The former will also draw in folks from abroad who might be able to provide the service; the latter will just increase the domestic supply. Since I'm agnostic about whether it's more efficient to have locally or foreign trained providers, the wage subsidy is a nice neutral way of letting the market sort that out.

Moreover, for most professions providing such external benefits, there will be multiple paths towards success in that profession. A great social worker, for example, could have a background in formal social work training or could have any number of other degrees, or even none. Why privilege one route rather than others when it's unclear that any particular route is best for all comers?

It's hard to build the case for subsidising students. We can build a case for subsidising research as a basic public good, or for dissemination of knowledge on similar grounds. But it's hard to argue that there are great efficiencies from these kinds of big transfers to middle class students.

Update 2: Note that Education Directions sees this as a likely non-issue; rather, it was a distraction thrown out at the Minister at the end of the speech in Q&A to divert attention from other stuff that's actually on the agenda. That's entirely possible; Dave there is certainly watching these issues more closely than I am.
Joyce has said more since then, but you have to admire a Minister who went into a speech with the main public issue being current caps on enrolments and steered the debate completely the other way. The first 24 hours focused on universities and ITPs screwing students and the government through extra fees, while the second 24 hours has focused on providers attacking employment outcomes as a measure of their performance. Not only has the focus shifted from the government and onto providers making rather awkward defences, but it has shifted to a potential policy that is years away. I thought Joyce would be good, but this is a great political lesson. Next we’ll be talking about whether Martian ecology should be funded in 2050.

Thursday 15 July 2010

The lies folks tell

OK Cupid turns its statistical eye to the lies its members tell. Of course, it's also possible that they're just drawing from the taller and higher income parts of the overall distribution, but that seems unlikely.

Hit the link above for the pretty graphs; here's a summary:
  • Self-reported heights follow the US distribution, but with a level shift of two inches. Self-reported height also correlates reasonably well with the number of unsolicited messages received: a 6'1" male gets about 1 unsolicited message per week; a 5'4" male gets one every two weeks. Women over 5'10" see a sharp decline in unsolicited messages. Recall of course that unsolicited messages here are date requests, not spam.
  • Reported incomes are about 20% higher than you'd expect given age, gender, and zip code. Men overstate by more than women, but not by much more. Young folks don't overstate much; older folks, by a lot. And, all of this lines up well with frequency of unsolicited messages as well: after age 22, there's a sharp drop off in unsolicited messages to low income folks.
  • "Hot" pictures are more likely to be out of date than average pictures: the median average picture is 2 months old; the median "hot" picture is 5 months old. 80% of average pictures are no more than a year old; 80% of "hot" pictures are no more than 2 years old.
  • 80% of self-reported bisexuals only are interested in one gender, but women so-reporting are more likely to send messages to both men and women than are men so-reporting. Half of young bisexual males send messages only to men; half of old bisexual males send messages only to women. There's no age trend among women.
I continue to await the first PhD dissertation written making use of OK Cupid data.

Wednesday 14 July 2010

Should the penalty for murder vary with the life lost?

Farrar today argues for stiffer punishment for folks who shoot at or kill police officers.

I'm not opposed to the idea, in principle, that we might want penalties to vary somewhat with the type of murder victim. But I think David here has the sign wrong.

Recall again that we have optimal deterrence when the cost of deterring one more offense is equal to the net damage of the deterred offence. And, with a bit of algebraic manipulation, the expected penalty ought to be equal to the damage to the victim less the cost of deterring one more offence. (see the link above or Friedman for the derivation)

What's the expected penalty for an offence? The probability of being caught multiplied by the fine if caught. What's the likelihood of being caught if you murder someone in New Zealand? High. What's the likelihood of being caught if you murder a cop in New Zealand? I don't have the stats, but I'd be surprised if it weren't pretty close to certainty. The police do a reasonable job in investigating murders, and folks shooting another cop seem pretty likely to get priority treatment. So, the expected punishment for shooting a cop is already higher than the expected punishment for shooting anyone else, just because the probability of being caught and going to jail is rather higher. The damage to the victim isn't much different between police officers and other folks; perhaps since police officers have voluntarily taken on risky jobs, we could argue that the damage is somewhat less as they've revealed a preference for taking on risk relative to the median citizen (again, this is a revealed preference argument, not any assertion on my part about relative worth).

So it then has to be the case then that the cost of deterring one more police shooting is much much cheaper than the cost of deterring some other shooting for it to be optimal for the expected punishment for killing a police officer to be higher than the expected punishment for killing someone else. And I'm not convinced that that's the case. And the expected punishment for killing a police officer is already higher than that for killing a civilian because the probability of being caught is higher.

Higher penalties for shooting police officers consequently isn't likely to be efficient. You might salvage it by claiming that the damage to the victim is really higher than I'm thinking: that somehow the "victim" isn't just the officer but all of society. But my default has to be equal treatment absent some good empirical evidence that most folks care more - and really care more rather than just saying they do - about a police officer being shot than about a civilian being shot. And we'd have to weigh that against the revealed preference argument that the officer willingly chose a riskier occupation.

Stepping outside of economic arguments, I worry about setting the police as a caste apart from the citizenry. The United States has gone far too far down that road.

Tuesday 13 July 2010

I read the news today, oh boy

The morning papers today make me angrier than usual.

Item the first. In a couple of op-eds and a piece for Policy, I used a reductio on where the nanny state might next turn: that the "social costs" of skiing, including costs to the health system and emergency rescue services but also lost wages and so on, would be found prohibitive and skiing consequently ought to be banned.

And now we're seeing emergency room doctors calling for mandatory helmet laws for skiers.
Christchurch Hospital head neurosurgeon Martin Macfarlane said he saw "more than several" people a year with brain injuries from skiing or snowboarding.

One or two would die each season, he said.

Macfarlane campaigned to make cycle helmets compulsory in the early 1990s, and he wanted helmets to become mandatory on ski-fields. Making helmets compulsory could save lives and prevent long-term disabilities such as memory loss and paralysis, he said.
I'm sure some shonky outfit could come up with a great big number showing the social costs of skiing, were somebody willing to fund such a study.

Oh: and National Radio's now shilling for mandatory helmets too. They interview the guy who runs Mount Hutt, who favours a national regulation. Quick tip: if you're running a ski field, and you want helmets to be mandatory, you don't need a law to do it. Just make it a requirement at your field. If you won't do it because you think folks will switch to other ski fields, doesn't that tell you something about your customers' preferences and about the loss of utility if we have a blanket regulation? Or do you just think people are really stupid?

Item the second: continued pushes to remove GST from healthy foods.

What's most disappointing on this one? It's the "Science Media Centre" that's sponsored a panel discussion on a tax change, but they've not bothered having an economist on the panel: just public health folks. I think that next year's New Zealand Economics Association meetings should have a panel discussion on the Higgs Bosun where only economists show up to give comment. It'd be great. Then we can have a forum of engineers talking about nutrition and the nutritionists commenting on bridge building. [Update: SMC reports having cast about for an economist but weren't able to find one!]

The Herald's online poll has more than 60% support for the tax change, 24% saying it's too hard to define "healthy", and 14% opposing. iPredict says it has an 8% chance of happening. I do hope National stands firm on this one. We have the cleanest GST in the world. National can't be daft enough to wreck it, can they? At least Peter Dunne, Revenue Minister, reckons the policy to be unworkable.

Yesterday's "Nine to Noon" on National Radio included a lengthy interview with a healthist about the evils of McDonald's Happy Meals and how "marketing" is used to make products sneakily more "attractive to customers". Terrible stuff that, making products that people like. It ought to be banned. Worse, they're on about it again today. Folks need to watch more Penn & Teller....

Item the third: confusing costs and benefits. The case for building more prisons has to be based on that incarceration prevents costs of crime that outweigh the costs of imprisonment, including the costs to the incarcerated of being incarcerated. I don't know which way that study would go were it here to be run: we're on the high end of imprisonment rates when compared to other countries, but we do seem to have problems with repeat offenders. But the case can't be built on the job creation benefits of building prisons. Unless you're Judith Collins:
A new prison to be built in South Auckland will bring $1.2 billion in economic benefits over 30 years, Corrections Minister Judith Collins says.

But she has been criticised for announcing the gains to be had from higher crime and more prisoners.

Ms Collins told the Rotary Club in Auckland yesterday that the 960-bed prison at Wiri was expected to bring 1900 jobs to the region in the next five years.

An economic impact report, commissioned by the Department of Corrections, expected the prison to bring $1.2 billion to the region over its 30-year lifespan.
A helpful reminder for the Corrections Minister - here's Treasury's view, from its excellent primer on cost-benefit analysis (p.43):
5.4 Tips and Traps
The following tips and traps are useful to consider before presenting the analysis to decision-makers:


Have you miscounted the use of real economic resources as a benefit? For example, the costs of building a stadium (materials, labour etc) is not a benefit to the economy. Often the jobs created by such projects are just a transfer from elsewhere in the region or country.
I wonder whether the commissioned report meets Treasury's standards. I wonder who did the report for them. I wonder whether the terms of reference for the report make it clear that the Government just wanted some big number to justify their preexisting policy. And I wonder, given both National and Labour's strong desire for shonky studies backing up their existing policy views, whether Hide's regulatory responsibility bill has any hope of passing in a form that could constrain government against commissioning such reports.

Lindsay Mitchell and DimPost also comment. [added: And No Right Turn]

But, one piece of good news: Roger Beattie's interview on National Radio yesterday.

Feeling good, doing harm

When the Americans with Disabilities Act, which mandates that employers must take costly measures to accommodate employees with disabilities, was proposed, economists warned that employers would likely wind up not hiring the disabled. It's pretty hard to prove discrimination in a hiring process. If the disabled worker were better for the job if it cost x to accommodate the worker, but the ADA mandated costs of y>>x, then the disabled worker would likely be found not to be the best applicant for the position.

And sure enough, employment of the disabled dropped with the ADA. But the folks who lobbied for and passed it still get to feel good about how they're great people for caring so much about the rights of the disabled to equal treatment in employment conditional on being employed.

Karl du Fresne tears a strip off of the Kiwi equivalent. Back in '07, Labour mandated that disabled workers in sheltered workshops be paid the minimum wage. The marginal revenue product of many of these folks' labour was very low, but working provided a sense of worth and a constructive activity to fill the day. You don't have to be a rocket scientist to work out what happened. The bigger puzzle is why the IHC, who ran a lot of the workshops, supported the law change.
The answer, as I write in my Listener article, is that IHC has been captured by a rights-based ideology that politicised the treatment of the disabled. In the process, it has distanced itself (in fact alienated itself might be more accurate) from many parents with intellectually handicapped children – the very people who have traditionally been its most loyal and supportive members. The depth of feeling against the IHC that I encountered, both from parents and IHC caregivers (though the latter wouldn’t dare be identified for fear of repercussions), was striking. The impression I got was of an organisation out of touch with its grassroots. In fact a secondary thread in my article touches on the dangers that arise when former voluntary charities such as IHC morph into large, politicised bureaucracies that depend on the government for funding (as IHC does, receiving more than $200 million a year from the state).

As one parent pointed out to me, a conflict of interest occurs when the organisation charged with lobbying the government on behalf of the intellectually disabled is also beholden to the government for money. The pressure to fall into line with government policy – in fact, to effectively become a de facto arm of government – is obviously formidable.
His Listener article will ungate 31 July; I may have to pick up a copy.

The 2007 legislation provided for exemptions from the minimum wage under rather strict conditions:
The Bill provides that a Labour Inspector may issue a “minimum wage exemption permit” to a worker if the Inspector is satisfied that:
  • “the worker is significantly and demonstrably impaired by a disability from carrying out the requirements of his or her work; and
  • any reasonable accommodations that could have been made to facilitate carrying out the requirements of the work have been considered by the employer and the worker; and
  • it is reasonable and appropriate to grant the permit”.
A permit remains in force for the period stated in the permit, and while the permit remains in force, the rate of wages stated in the permit is to be taken to be the minimum rate of wages prescribed under this Bill for that worker.
SOP No 93 proposes drafting amendments to this clause and, in particular proposes that a Labour Inspector be given the power to " ... revoke a permit at any time if the Inspector considers it is no longer reasonable and appropriate for the permit to remain in force" (Clause 13, New Section 8 of the Minimum Wage Act 1983, inserting new subsection(3A)).
Du Fresne reports this exemption process has been pretty costly for providers, but that the biggest source of workshop closures was IHC's decision that workshops weren't the best way forward under the new regime:
One result of the change was that a new layer of bureaucracy was imposed on the disability sector in the form of Labour Department inspectors who must now individually assess each disabled worker every year. Providers of disability services say the increased administrative burden has added greatly to their costs.

But a much more significant consequence was that IHC, which operated 70 percent of the country’s sheltered workshops, decided they were no longer compatible with its vision of a “fully inclusive” society and closed them all down. Chief executive Ralph Jones said IHC’s primary role was to support people with intellectual disabilities, not run business enterprises for them. Instead, IHC would concentrate on supporting its service users into “mainstream” employment.

It wasn’t a question of IHC’s sheltered workshops no longer being economically viable, because other providers of similar services, having obtained the necessary exemptions from the minimum wage, continue to operate.

The insensitivity with which aspects of the change were handled by IHC is extraordinary. In one town, intellectually handicapped people apprehensive about what the new regime might mean were assured that it would help them get jobs that paid much better money. This went down very well, I was told, until they asked what sort of jobs they would be getting. The list included “restaurant worker”, “library worker” and “pool attendant” – occupations that a caregiver described as “spectacularly inappropriate”.
So we have a nasty mix of policy failure and what appears to be ideological capture of an important charitable sector provider of sheltered workshops. It would be tough for a new charitable organisation to start up in the space that IHC used to occupy. The regulatory hurdles are costly; finding new donors would be tough too as most folks who want to donate for that sector would likely already have subscribed to IHC. Had the National government passed Sir Roger's minimum wage amendment, the government could have considered a less burdensome process for exempting workshops from minimum wage legislation. I'd expect that though to be a necessary rather than a sufficient condition for rebuilding the sector.