Monday 28 January 2013

Afternoon roundup

Today's afternoon news roundup.

Item the first: NZ's organ donor rate remains low; the kidney waiting list in particular remains long. Andy Tookey again suggests compensating cadaveric organ donors with subsidised funerals to encourage donation. I agree.

Item the second: if you're a small country, and the US ignores a WTO ruling in your favour, your options are pretty limited. Antigua gets points for creativity. HT: Susan.

Item the third: the National Business Review reprinted a couple of my posts this past weekend; here's cost-benefit analysis and banning cats. Their comment pool is a bit different from the one we have here. I'll be talking with Jim Mora and Radio New Zealand's The Panel on the topic around 4:15 this afternoon. [Update:  embedded below]

Item the fourth: American crime rates seem more sensitive to number of police on the streets rather than number of people in jail; the policy recommendation is to spend less on imprisoning people and spend more instead on community policing. A small portion of this effect is may be due to that crimes committed by police may be less likely to show up in the crime rates. The Bridgeport, Ct. police officers filmed stomping on the head of an immobilized and tazered individual are on desk duty rather than under arrest, at least so far. At least the guy who filmed them is unlikely to be arrested; had it happened in another state results could have been different. But I do agree with the overall policy recommendation - so much the more so if it could be done by diverting police resources away from victimless crimes.

Item the fifth: SciBlogs is running a survey on scientific literacy. I got a perfect score on it, but only because I lied a little bit about one of my answers. One question asks what makes a scientific result most credible: peer review, reputation of the research team, or a couple of other options. I knew the right answer was peer review. But I often put a lot more weight on researcher reputation. Things are so infrequently replicated, and results so often fragile when replicated, that I far more typically weigh a bundle of researcher reputation, publication, and topic. A new working paper from somebody who's credible is just worth more to me than a published piece from somebody who has a bit of a reputation for results that are fragile to specification search.

Item the sixth: +Jeet Sheth rightly wonders whether this is inconsistent with our usual assumptions around transitional gains traps. I'd think of it more in terms of a Peltzman regulatory model. In New Zealand, older used cars must undergo a basic safety inspection every six months while newer ones only need it every year - the Warrant of Fitness. They don't seem to be a profit centre for most garages except inasmuch as they give garages the opportunity to sell other (hopefully needed) services to those getting inspected; some garages specialise in only doing WoF checks on a quick while-you-wait basis. The national government proposed moving to annual inspections for vehicles first registered in 2000 or later. Recall that in the Peltzman model, regulation always balances the public interest with that of the regulated party; that balance changes as technology changes. The mechanics' trade association lobbied against the change, painting it as a road safety issue; the Automobile Association lobbied in favour of it despite also providing WoF checks. While dedicated WoF stations could have been earning some rents from the regulations, free entry into providing WoFs would have meant those rents would not have been huge. It's better viewed in a Peltzman model where deregulation (or a loosening of regulations) can emerge when a technological shock makes the regulation less beneficial to the regulated and to customers. Here, mechanics who weren't WoF specialists would have been seeing less benefit from the regulation as car manufacturing standards improved over time (and so potential gains from on-selling other services were smaller); the regulation's incidence was also pretty obvious to car owners.

Item the seventh: having this particular lotto number selection strategy isn't clever, it's just a way of increasing your winnings if your main numbers happen to come up. It's a bit nuts to purport that any number selection strategy is more clever than any other. It's a random draw guys. Random.

Item the eighth: Andrea Marchesetti points to a nice little story perhaps illustrating Caplan's rational irrationality model. Recall that in Caplan's model, when beliefs are of low cost, you'd indulge your bliss belief; when beliefs contrary to truth become expensive, you scale back demand for them. The Wall Street Journal reports that "haunted" homes in Hong Kong no longer trade at much of a discount; the property boom has pushed prices up. Entrepreneur Ng Goon Lau buys up at discount houses where an unnatural death has occurred, rents them out to expats who don't believe in ghosts, then later sells them - presumably with reports from the renters showing there to be no ghosts. It's unclear from the story whether the Hong Kong boom has brought in sufficient expats that haunted houses were bid up to standard prices without locals changing their beliefs, or whether the absolute increase in housing costs induced locals to put up with spooky ghost problems.

So concludeth the closing of the browser tabs.


  1. Item 7: In fact it's very definitely not a clever strategy. Having a 10 line lucky dip gives you an approximately 1 in 380,000 chance of winning first division for an average prize of ~$500,000 and a 1 in 3,800,000 chance of powerball at an average expected prize of ~$10m - an expectation of about $3.94 for a $12 ticket (ignoring expected winnings from lower divisions).

    The strategy this person employed gave them the same odds of winning powerball, but lowered their odds of first division to also be 1 in 3,800,000. The only difference is that if they one, they'd win first division 10 times over so scoop the majority of the pot - with a $1m pot, they'd expect to get about $800k of that on average. With this strategy their expectation would drop to $2.84 for the same cost ticket - a $1.10 loss in expected winning.

    Obviously there's some behavioural economics at play here, but it's an objectively stupid strategy. Of course buying a lotto ticket in the first place is stupid in an expected value sense...

  2. Thank you. I really didn't want to bother running the numbers; thank you for doing it for me!

  3. You mentioned the recent "Demographia Survey" in the radio clip.

    Have you seen's criticisms (linked below) of it?

  4. Hadn't seen; that one is not on my regular reading list.

    A few points to note:
    - Transport cites alternative measures also used by the Productivity Commission; PC did conclude that there are affordability problems in need of addressing.
    - Using rents rather than house prices does not get rid of the effects of different jurisdictions choosing different mixes of income/land/property/cap gains taxation; the incidence of all of the housing-related taxes will be borne partially by tenants, partially by owners. I'm also not sure how you solve the problem of that rents are heavily concentrated in the lower income / lower house value segment. Is there a data series that lists imputed rent for the median house, allowing for that house potentially to be owner-occupied? Median income, that's easy. Median income among those who rent - possibly doable. Median rent (including imputed implicit rent) to median income.... hmm.
    - Mortgage servicing costs are a worse measure than house prices because they get too much interest rate action that doesn't reflect housing fundamentals
    - The post saying that land value should be included in cost-benefit analysis of project proposals is badly badly wrong and is one of the "this is a very bad thing don't do it" things listed by Treasury in its handbook on cost-benefit: it's double-counting to count the amenities and the capitalised value of the amenities.
    - The post complaining about use of before-tax income rather than after-tax: I can buy this having some effects on the cross section across countries, but I'm having a harder time seeing this having much effect on the time series within NZ, especially since it's on median household income.

  5. In the same radio piece you seemed to support the concept of releasing more land, as well as relaxing regulations to allow for denser development.

    Would the former not result in an eventual market failure, given enough demand over time?

    I'm thinking of a Los Angeles type situation - where 99% of the once productive flat-land is now sprawling housing. Could the same occur with Christchurch expansion into the Canterbury plains on a long enough timescale? I find it hard to visualise a scenario where farmers are able to out-bid subdivisions - short of food prices going stratospheric - so eventual sprawl seems inevitable without intervention.

    This is more of a problem in Canterbury than it is in California, as California still has the huge Central Valley mostly free of sprawl. I was shocked to find out the other day that NZ's population density based on useful (arable) land instead of total land area is already higher than that of the US, Australia, Canada, Denmark, Russia, Argentina and Finland among others -

    When, for better or worse, agriculture is the main export game in town, it seems silly to force it out of business.

  6. There are some externalities related to sprawl, but "running out of farmland" sure isn't one of them. Plausible externalities could be via infrastructure, congestion, environmental effects, or negative amenity effects on those who have to drive farther to get out to the country. Not "running out of farmland".

    The price of farmland at base has to depend on expectations about future revenue that can be gained from farming it. When you buy a piece of land from a farmer to put into residential use, you're demonstrating that the value of that land in residential use exceeds the future revenue stream in farming. Now you could be wrong in your expectation, but your story requires more than one guy getting it wrong - it requires the whole darned world being out of order. Why? Because if farmland is undervalued relative to its true revenue stream, somebody who sees that can come in an make a speculative bet by buying up farmland, releasing his information about why farmland is undervalued, then selling at a profit when people see he was right. Your story then requires that pretty much every property investor is systematically wrong.

    The "oh, we're going to run out of farmland because of urban prawl or garbage dumps or something else" fallacy is something I spend 20 minutes beating out of my second year class. It's depressing that it's so commonly held by non-economists as it's utterly without merit.