Friday 29 May 2015

Rental rationing equilibria?

The only way I can make sense of Lee Suckling's renting experience in Auckland is that we're in a rental rationing equilibrium.

What does that mean?

In credit rationing models, too high an interest rate will only attract bad borrowers. When the lender can't tell enough about the borrower's creditworthiness, he'll ration credit: charge a bit less interest and give the loans to the most credible borrowers. Demand for loans will exceed supply at the going rate, but nobody does better by increasing interest rates to clear the market. Tyler and I discussed these models a while back; the implications for market efficiency aren't as clear-cut as you might think.

What does that have to do with the price of rental accommodation in Auckland?

First, note that it can be hard for landlords to evict bad tenants. Or, at least, lots of landlords believe that to be the case. Here is one recent horror story. Another another; the government has a hard time with it tooOne property management company lists a best-case of a 7-week process to evict a tenant that has stopped paying rent.

Now here's Suckling's account:
At every viewing you'll be one of at least 20 people. You'll wait patiently outside, eyeing up the competition, then will line up like sheep, shoes off, ready to file in five-at-a-time.

The reality is never as good as what TradeMe presents - especially if the listing used overexposed real estate photos, complete with fisheye angles that make 50 square metres look like 80. If you're looking in a city-fringe suburb, you will be met with grottiness. Auckland landlords, you seriously need to have your houses professionally cleaned. Last time we checked, $500 a week didn't buy us mould.

Still, such filth seems not to deter most. Four or five people will fill out applications then and there, before greasing up to the agent to find out how they're going to "win" this grubby, fungus-friendly house.

The answer? Be a white couple (yes, it seems race matters in agents' eyes), not a group of potential flatmates. Come with no kids, no pets, your own whiteware, and full-time jobs in a stable industry like law. Good references are vital, and you can't have a current lease - you need to be able to move in, well, tomorrow, so the landlord doesn't lose any money.

If such qualifiers are not already ridiculous enough, you'll also need to be flexible on your budget. I started with a price range the $450-$500 vicinity. Every week, my husband and I renegotiated the ceiling on our accommodation allocation. Last week, the budget had reached $600 per week.

Oh, and you'll need $3500 in the bank to give away as move-in costs to seal the deal - inclusive of the ever-ridiculous "letting fee", which seldom exists outside of Auckland and goes straight into the agency's pocket alongside five or 10 per cent of your weekly rent.

Viewing after viewing, application after application, your spirits will sink low. Really low. Finding a rental is like applying for jobs: you're excited and hopeful in the beginning, but come week three of rejections you think there's something seriously undesirable about you.

Rental-hunting depression is also fuelled by the sheer lack of decent houses out there - those you'd never thought you'd live in, but now, somehow, are actually considering.
Suppose you had a queue of 20 potential renters at a $600/week rent. At a higher rent, you'd have a shorter queue, but you'd have a worse pool from which to draw and less ability to be selective. So keep the rent lower and pick-and-choose.

If your basic model is that landlords are trying to eke out as much in rent as possible and that they'll hike the rent at any chance, why aren't they charging more if they're getting queues of dozens of potential tenants? A rental-rationing equilibrium could explain part of it.

Sure, maybe they're lowballing things to draw in a bigger pool for the at-house auction, but the additional anecdotal hurdles are all characteristics-based, not offer price. The tenants' expected financial stability matters a lot more when it's hard to evict non-paying tenants.

The rental-rationing story is also consistent with other odd accounts you'd hear, like that longer-term tenancies induce the landlord to charge more rather than less. If the rental-rationing story is right, a long-term tenancy subsequent to a short-term tenancy would be preferred by the landlord who's then learned tenant type, but the initial request for a long-term tenancy is riskier because you have fewer opportunities to be easily rid of a bad tenant. I don't know whether that's the case: I'm neither a landlord nor a tenant.

On the other side, Tenancy Tribunal decisions are already publicly searchable; landlords can find out about the riskiest tenants. This limits the extent of any rental-rationing equilibrium by knocking out the tenants who've recently had judgements against them and who are applying for your place under the same variant of their name that they used at their last place.

Potential solutions?

Making it easier to evict problem tenants can help, but that comes at the risk of empowering bad landlords.

Best solution would be to allow sufficient increases in housing supply that landlords had to compete a bit harder for tenants - while also making it fairly easy to evict bad ones.

I wonder too whether some of the grottiness and lack of upkeep is explained not only by the tight market for rentals but also by regulatory uncertainty around zoning. If you think the unitary plan might let you bowl a run-down property in a couple of years to put up townhouses, why invest in upkeep?

Thursday 28 May 2015

Migration targets

Suppose that all of the following are true.

  1. Auckland land use policies restricting both densification and expansion on the fringes make Auckland house prices highly subject to migration pressure. If you run a vertical supply curve, any shift in demand translates into moves up and down that curve.
  2. Migrants will go to the place that best suits them; that will depend on things like having an established community from their home country and on their likely wages in the different places.
  3. Many rural regions would really really like to have more migrants; it's easier to fund existing infrastructure if population isn't declining.
  4. Migrants prefer to go to Auckland and so current immigration policy is hitting on 1; that will continue until housing costs are so high that migrants are indifferent between moving to Auckland and moving elsewhere. This means that productivity differences between Auckland and the regions are capitalised into house prices.
The Immigration Minister's contemplating adding more extra points for those migrants willing to live outside of Auckland. This puts less pressure on Auckland housing prices, but does mean that migrants are forced to go to places were they would be less productive than they otherwise could be - or where they're worse off as they view things for want of Auckland-specific amenities. 

Best would be to fix Auckland land use policy so that more people could live there. Without that, we're in second-best worlds where the alternative to "migrants have to go to not-Auckland" could well be "well, then, we won't let so many migrants in."

While we're in this second-best world, I wonder whether there could be option for Councils to say how many points they'd like to award for migrants willing to come to their regions. The "Not Auckland" space is pretty heterogenous.

Wednesday 27 May 2015

So what *is* the most misleading term in Economics?

On Monday, I wrote disagreeing with John Quiggan’s piece on “Pareto optimality” being the most misleading term in economics. My disagreement was more with his argument than his conclusion, but nevertheless, it got me thinking about what is the most misleading term in Economics. I have four favourites, which I will list in reverses order. These are all misleading in some way, but to different audiences.

4. Efficiency.

As I said, I don’t entirely disagree with John’s conclusion. I believe that when economists use the term efficiency without an adjective, it (nearly) always refers to Pareto efficiency, which properly understood is a fairly innocuous concept. It simply refers to a situation where no-one can be made better off in terms of the things he or she values (more stuff, cleaner environment, better civic amenities, living in a civil society, whatever) without making anyone else worse off in terms of the the things they value.  But I always advise my students to never use the word efficiency when talking with non-economists. Exhibit A to explain why is the following quote from the 1962 verison of mutiny on the bounty. Captain Bligh (Trevor Howard) is explaining to Fletcher Christian (Marlon Brando) why he just had a sailor flogged for something he didn’t do, saying that it won’t be possible to run the ship in bad weather if sailors don’t fear their captain more than they fear the weather. He goes on to say: 
Now don’t mistake me. I’m not advising cruelty or brutality with no purpose. My point is that cruelty with purpose is not cruelty—it’s efficiency
This scene, which happens early in the movie, is important for setting up Bligh as a horrible person in the minds of the movie watchers (much like Joffrey’s encounter with the diawolf and the butcher’s boy in the second episode of Game of Thrones). The screenwriters knew that having Bligh use the word efficiency to describe the treatment of people would be chilling to viewers. It invokes notions of Dickensian eight-year-olds up chimney, of sacrificing human values to the end of maximising material production, the total opposite of the totally human-values-centric approach to welfare that Pareto efficiency invokes.

3. Aggregate Demand

Efficiency is a problematic term as it can mislead those outside the subject. Aggregate Demand is worse as it misleads our own students. I complained about this one here. A standard demand curve is a statement of intentions. It shows how much buyers would buy if they could buy as much as they wanted at a given price. At the equilibrium price, the desired demand will equal actual purchases. It is also possible, however, to be on the demand curve at points where desired demand and actual purchases are different (say as the result of a legislated maximum price). The so-called aggregate demand curve is not analogous. It shows different equilibrium combinations of price and quantity such that demand for output equals actual output. It is possible to be out of this equilibrium, through undesired changed in inventories or other quantity buffers, but that implies being completely off the curve. The aggregate demand curve is a useful graphical device for teaching some basic macro concepts, but its name pretty much guarantees that the majority of first-year students will misunderstand its properties.

2. Investment

Here we have a term that, I think, misleads even seasoned economists. Investment in economics, refers to the accumulation of capital goods. The term in general usage is often used to mean particular mechanisms that consumers use to save. So, for instance, buying a rental property is investment in this everyday use, but, if it is an existing house, it is not “investment” in the economics sense. I am convinced that slippage in the meaning of the word investment mid-sentence is the reason for some half-baked justifications for a capital gains tax, as in statements like “we need a capital gains tax so that people will switch from investing in houses to more productive investments”. As I noted here, buying an existing house is not “unproductive investment”; it isn’t investment at all. Once that is noted, the link between a capital gains tax and productive use of savings becomes extremely tenuous.

But these three misleading terms are trivial compared to the granddaddy of them all:


That is, the "non-accelerating-inflation rate of unemployment". This is just embarrassing. As a profession, we like to get smug and despondent about innumeracy in the press with respect to the number of derivatives, sighing every time we read statements “inflation rose by 3% in the year to March”, when what is meant is either that “prices rose by 3%” or “inflation was 3%”. But then we do the same thing ourselves with one of our technical terms. 

For goodness sake, it should be the non-accelerating-prices rate of unemployment (NAPRU) or the non-increasing-inflation rate of unemployment (NIIPRU). There is an alternative term—the natural rate of unemployment. If it weren’t for the existence of NAIRU, I would have the natural rate in my list of misleading terms. It conveys a notion of unemployment being something that is just given to us, not something that can be affected by policy, and certainly not something that has very real human consequences. Again, it is a term that misleadingly conveys economics as a cold, heartless subject. But I would rather our profession was incorrectly perceived as cold and heartless than correctly perceived as innumerate. So as long as NAIRU is the only alternative, I will champion the natural rate!

Stories that are probably linked...

The latest General Social Survey has Kiwis pretty happy:
  • The majority of New Zealanders rated their overall life satisfaction and sense of purpose highly in 2014.
  • Just over 8 in 10 people reported high levels of overall life satisfaction and almost 9 in 10 felt a sense of purpose in the things they did. 
  • Some population groups had lower levels of both overall life satisfaction and sense of purpose: sole parents, unemployed people, and people with no qualifications. 
  • Other population groups had notably lower levels of overall life satisfaction but their sense of purpose ratings were still similar to other groups’ – people who didn’t live in families, had incomes of $30,000 and under, needed an extra bedroom in their home, or identified as Māori or Pacific peoples.
  • Age differences had a strong effect on the different well-being rates reported by different population groups.
The data tables are interesting, but would be more interesting if we had by-respondent data.

For example, those outside the labour force had greater happiness than those working and those on the highest incomes were less likely to report "overall life satisfaction" scores of 10, the highest, than were those earning $30-70k in household income. And higher degrees are associated with far less life satisfaction and sense of purpose than having no qualifications at all. I expect retirees are affecting all those results. But we'd need some regressions to show it.

Meanwhile, John Key's National Party is polling well north of 50% support. Generalised happiness and life satisfaction is good for incumbents. Even the unemployed report a median "overall life satisfaction" score only one point below those in employment.

Tuesday 26 May 2015

Rebuild apportionment

The Press's opener here is pretty terrible:
More than half the $1.4 billion spent so far on fixing Christchurch's damaged infrastructure has been used for the eastern suburbs, but frustrated residents want authorities to do more.
The money gets spent where the roads are most broken. Bromley, New Brighton, Aranui and Bexley were wrecked; Fendalton and Ilam rather less so.

Meanwhile, central government contemplates selling off downtown land it never should have taken in the first place.

The place is maddening. Fortunately, you can't beat Wellington on a good day. And today is a good day.

If you believe the study...

If Christchurch Council believes the report it commissioned into the wider economic benefits of long-haul flights into Christchurch, it could pay its airport to adjust its slotting fees to ensure that long-haul routes are maintained.

Here's The Press:
Air New Zealand is pulling its last remaining long haul flights from Christchurch, cancelling direct seasonal flights to Tokyo.

After questions from Fairfax Media on Monday night, the airline began contacting the industry warning it of plans to end the flights, which currently operate over the summer months from Christchurch to Narita International Airport.

It later confirmed that the flights would not be operated next summer, saying it was putting on more flights from Tokyo to Auckland in response to research which said consumers had "no clear preference to fly into Christchurch".

"While we accept this decision is disappointing for Christchurch tourism stakeholders, the impact on the total number of seats the airline will operate into Christchurch is minimal," Air NZ said in a statement.

...Peter Townsend, chief executive of the Canterbury Employers' Chamber of Commerce, said Christchurch needed airport links to Asia both to cater to freight demands and bring in tourists to travel throughout the region.

"Air New Zealand need to consider the overall economic impact of their decisions. This isn't just about plane landings or passenger numbers into a particular airport, it's about the economic benefit that accrues from having direct international linkages into the South Island and into the regions of the South Island consequently," he said.

In 2010 a report commissioned for Christchurch Airport by Berl Economics estimated that direct flights from Singapore to the city created more than 2100 full time jobs and added $243.7 million in output to the region.
If Townsend believes those kinds of numbers, he should be asking Council to provide a special levy on businesses that benefit from those flights to subsidise continued routings - not asking Air NZ to turn into a regional development agency.

The continued decline in long-haul traffic into Christchurch must surely be giving Wellington Council second thoughts about expensive runway extensions, mustn't it?

Kiwisaver Tweaks

I was a bit surprised to see Labour complaining about changes to Kiwisaver in last week's budget. The $1000 start-up payment's been abandoned, with the savings put to programmes better targeted at the poor.

Both analyses I'd seen on the programme showed that it did nothing to change overall savings rates. Here's the 2011 analysis using limited survey data.  Here's the 2014 version using SOFIE and IRD administrative data.

The NBR points to Treasury's RIS, which recommended bolder changes: 
The Treasury's preferred option would have been a fundamental review of the KiwiSaver legislation's purpose to deal with the "imprecise definition of a target population" for the scheme, which is meant to be help Kiwis prepare for retirement. That option was out of scope for the advice the government sought from the Treasury on identifying measures to "improve KiwiSaver effectiveness ... and reduce the fiscal cost."
Here's the full Regulatory Impact Statement. Only 7% of scheme participants are in its target group. What a waste.

Monday 25 May 2015

Is Pareto optimality the most misleading definition in economics?

John Quiggan thinks so (HT: Tim Haford). I often disagree with John but understand the different perspective he is coming from. But this post has me really perplexed.

John's post starts with a discussion of Pareto's political views, suggesting that his construction of the concept of Pareto optimality and his other main intellectual contribution, the Pareto income distribution, were motivated by an antipathy to government redistribution policy. This may be right, but that fact in itself doesn't make the the concept of Pareto optimality misleading or dangerous. 

On the term itself, John's first point is that the use of the word "optimality" is misleading. On this, I agree to an extent. Optimality suggests the result of an optimisation problem with a well-defined objective, but one of the first things we teach our students when invoking Pareto optimality is that there are many different allocations that are Pareto optimal, and the Pareto welfare criterion (the value judgement that making someone better off without making anyone else worse off is a good thing), is silent on how to compare these different optimal allocations. Indeed, typically the first thing undergraduate economics students see after encountering Pareto optimality is the two welfare theorems, the second of which specifically refers to different Pareto optimal allocations, and how all can be sustained by a competitive market given an particular allocation of property rights. Yes, optimal is a poor choice of word, but the context in which it is used does make it clear that it doesn't imply the single-best (by some notion) outcome. 

But then John says: 
Recognising the inappropriateness of describing radically unfair allocations as “optimal”, some economists have used the description “Pareto efficient” instead, but this is not much better. It corresponds neither to the ordinary meaning of “efficient” nor to the meaning with which the term is commonly used in economics, which is also misleading, but in a different way.
A few comments are in order here: First, the "some economists", surprised me. I thought that "Pareto efficiency" was overwhelmingly the preferred term for the concept. I quick google of "Pareto optimality" and "Pareto efficiency", yielded 263,000 hits for the former and 377,00 for the latter, which is a way smaller ratio for the latter than I was expecting, but still a majority. Second, I thought that Pareto efficiency corresponds exactly to the way the term "efficiency" is used in economics. In fact, I always teach my students that if the noun "efficiency" is used without an adjective, it is always Pareto efficiency that is implied. I would be interested to know how our commenters perceive the term. 

John suggests instead using "opportunity cost". 
The concept of opportunity cost gives us a better way to think about the possibility of making some people better off while no one is worse off. If such possibilities exist, then there are potential benefits that have no opportunity costs. Conversely, if there is a positive opportunity cost for any benefit, then we can’t make anyone better off without making someone else worse off. So, a “Pareto optimal” situation may be described, more simply as one where all opportunity costs are positive.
This doesn't seem right to me. Opportunity cost is a tautological statement about scarcity, not about welfare. If I take resources away from some use (say private consumption) and use it for another (say the provision of a public good), and do it in such a way that it is Pareto improving, there has still been an opportunity cost. TINSTAAFL still applies: we didn't get the public consumption for free; it's just that we all preferred what we got to what we had to give up to get it. 

So while "Pareto optimality" may be a bit misleading, I don't think "Pareto efficient" is, and I'm not sure what is a viable alternative to what is a very useful concept. So let's get back to whether the concept itself is dangerous. 

The nicest thing about the concept of Pareto efficiency is that it expresses outcomes purely in terms of the values of the individuals on society, not the values of the particular economist or government, employing the concept. There are more things that we might value than just Pareto efficiency, but how we weight them is a personal value judgement. Best to leave them as separate concepts and report them all, rather than obscure the weighting value judgement in the construction of a single well-being metric. (That is the main reason I am nervous about moves to move beyond GDP to "Gross National Happiness", but that is the subject for another post.)

Where Pareto efficiency becomes dangerous is when it is confused with the Kaldor-Hicks notion of potential Pareto improvements and then implicitly used as a welfare measure. Recall that according to this notion, a policy is desirable if in principle it would be possible to implement it and then make side payments where the winners compensate the losers even if those side payments are not made. Of course, it would be rare for an economics course to put that principle in front of students and suggest that it is a reasonable one, but sometimes, in taking the view "economists can talk about efficiency, but have nothing to say about equity", economists make it all to easy to confuse "we are only qualified to talk about efficiency, not equity" with "only efficiency matters, not equity". This does not mean in any way that we should abandon the concept of Pareto efficiency or change its name; we just need to be more careful to be clear that it is not a single measure or well-being. 

Groser on Canada

I like our Trade Minister:
New Zealand Trade Minister Tim Groser has attacked the Canadian milk production system, saying the industry belongs in the former Soviet Union and its market should be open to competition. A Canadian dairy industry analyst has come out to say he can not fathom New Zealand Trade Minister Tim Groser’s aggressive attack on the Canadian milk production system, in which the minister said the Canadian dairy industry belonged in the former Soviet Union and its market should be open to competition.
Bruce Muirhead, Associate Vice President of External Research at the University of Waterloo in Ontario, said Groser’s attack was misplaced and the New Zealand minister was "playing with fire".
Groser's far closer to right about this than Muirhead.
US milk producers want the Canadian dairy market opened too, but for the moment they are setting their sights on Fonterra in New Zealand.
They have gone on record as saying that if Fonterra isn’t fundamentally changed, it represents an unfair advantage for New Zealand and they are going to oppose NZ inclusion, at least Fonterra’s inclusion in the TPP (Trans Pacific Partnership) final agreement.
I'd reckoned the play here would come post-TPP: after we'd signed up, the Americans would launch antitrust action against farmer-cooperative Fonterra to block NZ milk imports. That could change where Obama's trying to cobble together a coalition to get fast-track authority though.

Friday 22 May 2015

Coasean biosecurity externalities

Michael Reddell beat me to the punch on this one.

The budget's imposed a customs levy on air travellers to cover the costs of biosecurity border enforcement. Michael makes the simple Coasean point:
  • A new tax on international travel.  I wonder if the government looked at the possibility of levying these costs on, for example, the apple and kiwifruit industries, for whose benefit most of the biosecurity apparatus seems to exist?  Are those industries really economic?
It's a bit beyond that. Somebody bringing hoof and mouth disease into the country would do rather more harm. But the simple Coasean point is that it takes two to make an externality. Either the agricultural sector will impose an external cost on the tourist sector, or vice versa. It isn't obvious which side of the ledger ought to bear the burden.

The rest of his post on the budget is well worth reading, as is his follow-up. I especially liked this potted history in the latter post:
The previous government in many ways deserves a lot of credit for keeping spending in check for their first six years, but the structural surplus in 2006 peaked at 4.7 per cent of GDP (OECD estimate). Those huge surpluses just set up an electoral auction in the 2005 election campaign.  No political party will ever want to be in the position of allowing their opposition to spend the surplus their way –  those choices, about priorities, are a large part of what politics is about.  And the large surpluses built up in the early 2000s didn’t even do much to ease pressure on monetary policy, because they were run up well before the peak pressures on resources (2005 to 2008).  Quite possibly, overall macroeconomic management in New Zealand over the last 15 years would have been a little better if piecemeal adjustments had been made throughout.  We’d never have got into a position where we had highly stimulatory discretionary fiscal policy in the period (2005-2007) of greatest pressure on resources (and on the exchange rate).  And it would also have avoided a situation where Treasury, applying its best professional judgement, finally determined only just before the great recession of 2008/09 that the revenue increases looked permanent.  A high stakes judgement that turned out to be quite wrong.  Fiscal institutions, and ambitions, need to take more serious account of the severe limits of anyone’s knowledge.  A Fiscal Council, as the New Zealand Initiative and the former director of the IMF’s Fiscal Affairs Department have recently called for, might explore some of these issues.  Or a Macroeconomic Council might?  Then again, our academics and think tanks might lead such debates.
The best case we can make for yesterday's budget is that it bought the government time to undertake the more substantial reforms to the benefits system behind the scenes: pushing towards outcome-based contracting, outsourcing service provision, running innovative experiments like Tamaki.

Maybe my expectations have been too high. Under the government's budgetary projections, conditional on continued fiscal discipline, by 2018 government spending as a fraction of GDP will be back to where it was in 2004 under Helen Clark. In 2008, I'd have been very happy for government spending to ever return to 2004 levels. So there's that. Conditional on continued fiscal discipline.

Minimum wage research - the state of play

Adam Ozimek summarises:
Criticisms of the state data approach motivated detailed examinations of how robust the models were to different specifications of pre-existing state and regional trends. Concerns about the sensitivity of the models led tobreakthrough research that focused on employment growth rates rather than levels. This research left the state data results more robust, and also helped explain why the older models sometimes found no effects. Concerns that states raise minimum wages when labor markets are booming have led to research using instrumental variables and federal minimum wage hikes in a state model, the results of which suggest significant job losses.
On the other side, criticisms of the original cross-border pair study led to pioneering research that looked at many cross-border pairs at the same time instead of focusing on one case study. Criticisms about whether the model could actually detect disemployment effects led to research showing that raising the minimum wage lowers job turnover.Other research using cross-border methodology found that while employment effects were small, raising the minimum wage put some firms out of business and led others to open, which implies that long-run job losses may be larger than those in the short run, as adjustments take a long time.
And the research has progressed. One recent paper used data that followed the same individuals over time. It found significant disemployment effects, and that the lost job experience hurt workers even after they eventually found new jobs. Importantly, this work showed that focusing on teenagers or fast food employment, common approaches in the earlier literature, can lead to underestimating the job losses.
A brand new paper suggests low-skilled workers move out of states that raise minimum wages. This new research raises the possibility that mobility and even housing markets may play a role in the effects of the minimum wage.
The historically unprecedented size of recent minimum wage increases means the risk of job loss is higher.
It'll be interesting to see what happens with the California minimum wage hikes.

Thursday 21 May 2015

From coal-tit to cannibalistic spiders

XKCD's spider explainer has been making the rounds. And one part reminded me of Gordon Tullock.
In 2009, the Back River Wastewater Treatment Plant found themselves dealing with what they called an "extreme spider situation." An estimated 80 million orb-weaving spiders had colonized the plant, covering every surface with heavy sheets of web.[10] The whole thing is detailed in a fascinating and horrifying article published by the Entomological Society of America.[12]
What was the total force of gravity from all those spiders? First we need their mass; according to a paper titled Sexual Cannibalism in Orb-Weaving Spiders: An Economic Model, it's about 20 grams for males and several times that for females.[11] So even if you were standing next to the Black River Wastewater Treatment Plant in 2009, the pull of all the spiders inside would still be only 1/50,000,000th that of the Sun.
The paper models when the female spider will eat the male rather than mate as a function of number of potential males around for mating and other food sources. So opportunity costs and relative prices.

Gordon Tullock founded the field of bioeconomics when he observed that the Coal Tit seemed to apply rational choice in its food search, or at least that one could improve on an avian ecologist's modelling by putting it into that framework. He later founded the journal Bioeconomics.

Here's Janet Landa's summary:
Tullock’s (1971) first published bioeconomics paper titled, “The coal tit as a careful shopper”, was published in The American Naturalist, a scientific journal sponsored by The American Society of Naturalists.

According to Tullock, the inspiration for his coal tit article was provided when he read a book by David Lack (1966)—an avian ecologist—in which Lack summarized the work of J. Gibb (1958) on the coal tits’ consumption of eucosmid moth (Ernarmonia conicolana). Because Gibb used a diagram which, to Tullock, looked somewhat like the economist’s demand and supply diagram, this led Tullock to develop Gibb’s idea by explicitly formulating coal tits’ foraging behavior as an economic optimizing problem by comparing the coal tits’ behavior to that of a careful housewife comparison-shopping in the cheapest market: the coal tit would seek its grubs in those areas where the energy cost would be lowest; in other words, coal tits:
... are maximizing the return to their labor in searching out food supplies... . Presumably, they have inherited an efficient pattern of behavior resulting from natural selection which would eliminate inefficient heritable behavior patterns (p. 77).
Tullock (pp. 79–80) ended the article by saying:
It may surprise biologists and certainly will surprise economists to learn that it is possible to use segments of economic theory to explain biological phenomena. Nevertheless, it seems to me that the problems of biologists are difficult enough so that they should seek help wherever it seems to them that their particular competence may be of value. This essay is, then, an effort, to establish a minor link between two fields that at one time were very closely connected, but have grown apart.
Alas, the 1991 spider paper doesn't cite Tullock.

Next time you see a member of the Swedish Academy who failed to vote for a Tullock Nobel, kick it in the shins for me.

Wednesday 20 May 2015

A plain English censorship primer

The good folks at the Office of Film and Literature Classification Office tell us they've updated their plain English guide to the censorship laws to reflect the recent legislative changes.

I find anecdotes can be helpful.

Suppose that your 17 year old brings some friends over to watch Game of Thrones. They're all aged 16-18.

If they're watching it on Sky, it's ok. The broadcast comes after the watershed and comes under the Pay TV code of the Broadcast Standards Authority. The warnings are advisory and do not carry legal penalties for viewers.

If instead they're watching it on DVDs you'd purchased, you are in breach of Section 125, which makes it an offence to supply, distribute, exhibit or display a publication contrary to its classification or to allow another person to do this. The fine is up to $3000.

But, now that you know that Game of Thrones Season 4 Episodes 7 & 8 are considered R18, you've supplied it with knowledge that it's age restricted. And so it's Section 126, which has imprisonment for up to 3 months or a fine up to $10,000.

If they'd watched it on Netflix or Neon, you'd be in the same trouble as you'd be in if they'd watched it on DVD.

This kind of plain English explanation can be particularly helpful in explaining precisely how wonderful our current regime is. We can't blame the Censor's Office for this - the legislation is idiotic and needs an overhaul.

But we can wonder about whether it's reasonable to set a rating that makes it illegal to watch a show on DVD that is legal to watch on broadcast. The Censor's Office has RP13 and RP16 ratings it can use allowing children to view the material only when with a parent or guardian. Is it really sensible to set anything that can air on Sky TV as having a harsher rating than RP16?

Tuesday 19 May 2015

Host responsibility - dairy edition

Since the New Zealand healthists seem determined to rocket us down the slippery slopes from tobacco to alcohol to sugar, let's think about how host responsibility might apply to dairies.

Bars are prohibited from serving alcohol to those who are already intoxicated. That's host responsibility. The healthists want to ban dairies near schools from selling sweet stuff to kids. But is it really all kids who are the problem here, or just the obese ones?

Host responsibility should mean, if applied appropriately here, that dairies shouldn't be banned from selling lollies to kids, just to obese kids. Just like bars aren't banned from selling beer to all people, just to intoxicated ones. They'd have to use a judgement call on who's over-the-line, just like bartenders do. Maybe there could be a training programme.

You'd probably need additional penalties for thin kids who intermediate and on-sell lollies to their friends.

To be clear: I totally oppose this. But do I oppose it more than a blanket ban on all kids buying lollies? Do you?

Note too the great classist implications of banning kids from buying from dairies near schools but not from supermarkets or high end chocolate shops. Maybe we need to refine the host responsibility proposal to target only obese kids who look poor. Because that's what's really intended, isn't it?
But not high end chocolate milk?

Monday 18 May 2015

A tweak for road user charges

New Zealand's road user charge system, in which petrol excise is a level rate but diesel charges vary with the weight of the vehicle, seems likely due for a rethink in the next few years. The bigger change will be needed as electric and hybrid cars take up a greater proportion of the fleet.

But here's a little one that could be bundled in at the same time.

Currently, every diesel owner has to report mileage and pay their road user charges. Smaller vehicles have a low per-km charge; large ones have a larger charge. It would be trivially easy to impose excise on diesel equivalent to the costs that small diesel vehicles impose on roads - the same as the petrol levy. Then, exempt small diesel vehicles from having to pay road user charges while lowering the tariffs for larger vehicles' road user charges.

You'd maintain the appropriate link between vehicle weight and road user charges while saving a pile of smaller diesel vehicle owners the hassles involved with road user charges. And as more smaller vehicles switch over to diesel, it seems a simple change worth making.

Update: the comments section has helpfully pointed out the substantial issue with this scheme:

  1. Because much diesel is used off road, we'd have a trade-off between the hassles of RUC for small diesel vehicles and the hassles of running an untaxed stream of diesel that could leak back into the road market. When I was a kid in Canada, petrol for on-farm use had purple dye in it, and vehicles that were not registered for farm use were forbidden from using it; they had occasional checks, and a purple tinge in your carborator could be used against you.
  2. The actual hassles of paying RUC for small diesel vehicles is smaller than I had been led to believe by the diesel owner who pointed me in this direction. So it seems highly unlikely that the overall scheme is hassle reducing.
I consequently withdraw the suggestion.

Friday 15 May 2015

LVRs and central bank independence

In this week's NBR, I worry a bit about whether the RBNZ's going well beyond its mandate with the LVR policies. Absent strong evidence of systematic risk that would trigger the prudential supervision role, what mandate do they have to dictate which kinds of collateral must be put up by which kinds of lenders?

A snippet:
Why does all of this matter? Auckland house prices seem well deserving of a policy response – should we not welcome the RBNZ’s continued attempts to chisel the peaks off of this mountain? 
Unfortunately, the policy move itself has substantial risks. We have yet to see any assessment of the costs that designating a new asset class might impose on the banks that will have to comply with the regulation. There will be tricky boundary cases: if a buyer secures a loan against his existing property and against a new purchase, with intention of selling the former after the move, would that count as an investor or owner-occupied purchase for application of the LVR? 
But the more important risk is to RBNZ credibility and independence. New Zealand pioneered central bank independence and the world followed. The Policy Targets Agreement which forms the basis of the Bank’s operational independence is a thing of beauty. But the Bank’s independence is only politically sustainable to the extent that it complies with its mandate and does not undertake actions that fall outside of its mandate. 
Pick up your print edition...

Thursday 14 May 2015

Local regs, macro effects

What's the cost of bad urban planning policies? About 9.5% of GDP as a first cut, according to new work by Chang-Tai Hsieh and Enrico Moretti at NBER.

What's the mechanism? When productive cities make it hard to accommodate new workers, whether because of restrictive zoning downtown preventing densification or restrictions on the urban fringe, workers who could otherwise be more productive in moving to the more productive place instead can't; they're priced out and have to stay in less productive centres.
When we quantify the output and welfare cost of this increase in dispersion of the marginal product of labor, we find that aggregate output in 2009 would have been significantly higher if the dispersion of nominal wages had not increased. Holding the distribution of local TFP fixed at 2009 levels, we hypothetically reallocate labor from high wage to low wage cities such that the hypothetical wage in each city (relative to the average wage) is equal to the relative wage in 1964. Intuitively, this scenario involves setting amenities and housing supply at their 1964 level, while keeping labor demand constant at its 2009 level, and allowing workers to reallocate across cities in response. Under this scenario, aggregate yearly GDP growth from 1964 to 2009 would have been 0.3 percentage points higher. In levels, U.S. GDP in 2009 would be 13.5% or $1.95 trillion higher. This amounts to an annual wage increase of $8775 for the average worker.
The effect is driven by housing supply constraints rather than by compensating differentials due to disamenity effects from larger populations.
We estimate that holding constant land but lowering land use regulations in New York, San Francisco and San Jose to the level of the median city would increase U.S. output by 9.7%. In essence, more housing supply would allow more American workers to access the high productivity of these high TFP cities. We also estimate that increasing regulations in the South would be costly for aggregate output. In particular, we estimate that increasing land use regulations in the South to the level of New York, San Francisco and San Jose would lower U.S. output by 3%. 
And if central government is looking for justification for heavy-handed approaches to dealing with cities with restrictive zoning:
We conclude that the aggregate gains in output and in welfare from spatial reallocation of labor are likely to be substantial in the U.S., and that a major impediment to a more efficient spatial allocation of labor is the growing constraints to housing supply in high wage cities. These constraints limit the number of US workers who can work in the most productive of American cities. In general equilibrium, this lowers income and welfare of all US workers and amount to a large negative externality imposed by a minority of cities on the entire country.  
What sorts of policies?
In principle, one possible way to minimize the negative externality created by housing supply constraints in high TFP cities would be for the federal government to constrain U.S. municipalities’ ability to set land use regulations. Currently, municipalities set land use regulations in almost complete autonomy since the effect of such regulations have long been thought as only local. But if such policies have meaningful nationwide effects, then the adoption of federal standard intended to limit negative externalities may be in the aggregate interest. 
An alternative is the development of public transportation that link local labor markets characterized by high productivity and high nominal wages to local labor markets characterized by low nominal wages. For example, a possible benefit of high speed train currently under construction in California is to connect low-wage cities in California’s Central Valley -- Sacramento, Stockton, Modesto, Fresno -- to high productivity jobs in the San Francisco Bay Area. This could allow the labor supply to the San Francisco economy to increase overnight without changing San Francisco housing supply constraints.
So fix Auckland land supply, or put in a 200kph bullet train from Hamilton to Auckland CBD.

Update: to make very clear, whenever I say "land supply", I mean both allowing increased density in town and allowing expansion at the fringes. Land supply means land where you're not banned from doing what's economically appropriate. Height regulations block economically appropriate uses as can metropolitan urban limits.

Wednesday 13 May 2015

Psychic harms and property rules

Get your photons off of my lawn!

Here's Steve Landsburg:
George Johnson of the New York Times writes that:
In a saner world, where science and the law meshed more precisely, a case like Firstenberg v. Monribot would have been dead on arrival in court.
Arthur Firstenberg, you see, is suing his neighbor, Raphaela Monribot, for bombarding him with photons from her iPhone, her WiFi connection, her dimmer switches and her fluorescent bulbs (all as side effects of her ordinary use of these devices). Mr. Firstenberg believes (or claims to believe) that said photons are damaging his health — a belief with essentially no scientific basis.

Mr. Firstenberg requests $1.43 million in damages, so perhaps we should think of this as an exercise in bosonic “ka-ching” theory. The case has gone on for five years, and might be headed to the New Mexico Supreme Court. Estimated court costs so far exceed a quarter of a million.
Psychic harms of this sort have been a problem for a while. How do we decide to allow photonic transgressions that cause psychic harms but not allow other transgressions that (in thought experiments) only cause psychic harms?

Here's David Friedman's resolution, from a couple years ago, to a prior Landsburg thought experiment:
More precisely, the property rule under which I have a right to read porn [EC: despite the psychic harm potentially imposed on prudes] and you can only stop me by offering to pay me not to do so produces its result by ignoring the cost my porn reading imposes on you, since, as with the case of risks imposed by careless driving, including that cost requires an unworkable contract between all of the prudes and all of the would-be consumers of porn. The property rule under which you have a right to forbid me, or anyone else, from reading porn, produces its result by ignoring the cost your ban imposes on me, for the same reason. Neither property rule gets the cost/benefit calculation correct, but the former rule is a great deal less expensive to enforce than the latter, which is an argument for it.

What about a liability rule? That is the point at which the subjective nature of the harm comes in. It is true that, from the standpoint of economics, all harm is ultimately subjective—having my arm broken or my car dented would not be a cost under sufficiently bizarre assumptions about my preferences. But some subjective costs are a lot easier to measure externally than others. When I claim damages for my wrecked car, there are market prices out there for repairing or replacing it that provide a court with a reasonable basis for estimating the cost. When I announce that your reading of porn, or oil drilling in a wilderness I never plan to visit, inflicts large psychic harm on me, there is no such basis for checking my claim.
The photon case should use a property right rule where I have the presumptive right to emit photons (though you can pay for abatement), because it's easy to fake psychic harms from photons and it's unverifiable.


Friday 8 May 2015

Now, subject to increased penalties!

The NZ Film Censor's blog helpfully reminds us that the new legislation increasing penalties for possessing objectionable materials is now in force!

Their search function tells us that 12 comic books were deemed objectionable from 2000 to 2015, all in 2001. Why 2001? I'd guess that some shipment of comic books got held at customs and OFLC was asked to classify it.

Here is the justification banning one of those comic books: it's classed as objectionable. I can't link it because their database back end doesn't support that, but here's the decision for Spunky Knights.

You can go to jail for up to 14 years for importing it, 10 years for possessing it.

Here's the justification for potentially throwing somebody in jail for owning a comic book.
The comic entitled Spunky Knight has been classified as objectionable.
The comic contains cartoon images rendered in a style known as Manga Lolikon, and involves female characters with child like features. The comic contains seven separate stories each of which is used to provide a context within which explicit sexual activity is depicted.
In some stories, female characters engage in sexual activity with mythical creatures. The publication is not considered to promote or support, or tend to promote or support, bestiality in terms of s3(2) of the Films, Videos and Publications Classification Act (FVPC Act) due to the fantastical nature of the stories.
The publication has been considered under s3(3) of the FVPC Act. The publication depicts sexual violence and coercion in association with sexual conduct, and degrades females to such a high extent and degree, that the availability of the publication is likely to be injurious to the public good. The publication is therefore classified as objectionable.
The New Zealand Bill of Rights Act 1990 has been considered in relation to this publication. The classification represents the minimum interference with the freedom of expression consistent with preventing likely injury to the public good.
OFLC Ref: 100232
Spunky Knight. Make sure it's not in your collection. It's available at (out of print) for $57. It'll cost you a lot more than that if New Zealand's police find out you've got a copy.

The decision summary only cites s3(3) as reason for banning. That by itself wouldn't be enough to put the publication into the special-extra-banned child porn designation, but the Censor's Office, which continues to have NZ's single best twitter feed for helpful government answers, confirms that the full decision document - available on request - refers to sections including 3(3)(a)(iv), which means you're into repeat offender territory where presumption of imprisonment applies.

New Zealand criminalises possession of comic books available on If you've a prior record, there's a presumption of imprisonment for owning a comic book. Asylum stuff.


Thursday 7 May 2015

Credible Crack Commitments

Suppose that you're a crack dealer and you know that the Mayor of Toronto would like to buy some crack. But the mayor rightly fears that you might surreptitiously video the mayor's crack use and sell the video for big big money.

If the mayor doesn't trust you, he won't buy your crack. If he does buy your crack, and you can get away with it, you will video and sell. Since you can't commit to not videoing, he won't buy and you're both left worse off.

How can the dealer credibly commit to not videoing the transaction?

  1. If the mayor can commit to violent retaliation even where such retribution would be personally costly, then that can induce performance. But it's can be hard for a mayor to make that kind of credible commitment when he's had large public disputes with the police.
  2. The mayor could require the dealer to provide him with his name and address. Then, the mayor could wear a big "I'm smoking Jim's crack" t-shirt during any videoing. Any released video would implicate the dealer, who could then be arrested for selling crack and would likely have any video profits seized as a proceed of crime.
    • But, the mayor would know that a sufficiently canny dealer could blur out the t-shirt's incriminating details before selling the video, so that doesn't work. Further, it's really no different from committing to rat out the dealer if arrested. Where the dealer has an easier time hiding than a large and prominent Mayor (and doesn't lose much by having to hide out), it won't work. 
  3. Maybe the dealer could establish a reputation for being the dealer who's discreet. So the mayor could ask other prominent Torontonians who also use crack, and who would plausibly have been blackmailed already by their dealers were their dealers the blackmailing and videoing type, who their dealers are. But the bigger the portfolio of such folks that one dealer amasses, the greater the chances that the one off "sell all the video" gains will dominate the flow of continued celebrity drug money earnings.
I'm not sure there are any good feasible solutions to the problem. Since no dealer can credibly commit to not selling out the Mayor, the Mayor won't buy the crack.

Votes for Kids

Newstalk ZB interviewed me last week on the idea being floated around that kids should get to vote on any new New Zealand flag.

I was a bit sceptical about it.

The audio's here.

I suppose that if we had to let kids vote on something, there wouldn't be much damage in a flag vote.

Wednesday 6 May 2015

I think we need another economist

The New Zealand Initiative is looking for a new Research Fellow.

The role is Wellington-based. We're looking for a good all-rounder, with strong economic and empirical skills, who'd initially take on a project looking at education but expand more broadly from there.

We want somebody who's got a fire in the belly for good policy. It's not a civil service position: we want someone who, after taking an evidence-based assessment of the world, jumps into the fray to explain how and why policy needs to change. You need to be able to write clearly and quickly for a general audience, as well as to be able to engage with the Wellington wonk community.

These are the the kinds of research reports we produce, to give a sense of the kind of work you'd be doing.

Our 2-year research plan has work streams in localism & local government, education, and inequality, poverty & welfare.

We're non-partisan, evidence-based, and committed to a more free and more prosperous country. Come help out.

A Whanau Ora puzzle

I've been in Wellington for the better part of a year now. I've attended a few different sessions from various Ministries on topics relating to stuff we're working on or might work on here at the Initiative.

I've never properly understood what Whanau Ora, the new(ish) welfare delivery system, was or how it worked. And so I'd ask around a bit at sessions where folks might know; I never got any clear answer on whether it was working out or how it was being evaluated.

The Auditor General also seems puzzled: "It was not easy to describe what it is or what it has achieved."

Ok, so nobody really knows, and that's why I only ever got vague answers.

Usually this means that nobody bothered setting up a budget for project evaluation or thought about how to assess outcomes at the outset. You need to build evaluation in at the start.

But the Auditor General also says this:
Nearly a third of the total spending was on administration (including research and evaluation). In my view, Te Puni Kōkiri could have spent a greater proportion of funds on those people – whānau and providers – who Whānau Ora was meant to help.
How do you spend a third of your budget on administration, $42.3 million, including research and evaluation, and still wind up with the Auditor General saying:
We could not get a consistent explanation of the aims of the initiatives in Whānau Ora from the joint agencies or other people that we spoke to. So far, the situation has been unclear and confusing to many of the public entities and whānau. Government agencies need to be able to explain what results are expected – or hoped for – and achieved from spending public funds. Clearly understood aims generally lead to clear accountability and good reporting. Good reporting is particularly important with innovation, because it allows changes to be made when required.
The Auditor General's right that these kinds of innovative initiatives shouldn't be abandoned. But it is a bit surprising that a forty million dollar administrative structure couldn't set up some initial sensible evaluation criteria and methods, with proper reporting follow-through.

That's the puzzle for me. Not spending anything on evaluation - I can understand that. Spending a pile on admin and evaluation, and getting Auditor General reports like this one - that's a bit more of a puzzle.

Zealand Free Banking

The more I read Mike Reddell's blog, the more I like it.

Here's Reddell on free banking:
The Reserve Bank of Australia yesterday put out a Research Discussion Paper containing some discussion of the nature, and estimates of the size, of the social costs of counterfeiting of Australian banknotes.
It is good to see a central bank producing research in this area, and opening it to public scrutiny.  But I question the starting point.  I wonder how confident the Reserve Bank of Australia (and perhaps more importantly, the Australian Treasury as advisers to the Treasurer) can be that the statutory monopoly on physical currency  – which is what the anti-counterfeit measures are protecting –  is itself socially beneficial?
Without that statutory monopoly (on notes in section 44 of the RBA Act, and on notes and coins in section 25 of the Reserve Bank of New Zealand Act) banks would have been likely to have gone on issuing their own notes (and perhaps coins).  New Zealand banks issued their own notes until 1934, when the first Reserve Bank of New Zealand Act prohibited them from offering that payments medium, as part of (but not a necessary part of) the establishment of a central bank in New Zealand.
If the monopoly were removed today, it is likely that private issuance would resume, and central bank notes would revert to being issued/used primarily in quite extreme crises, when there was a generalised loss of confidence in liabilities of the banks.   
There is no obvious reason why, in normal times, people would be any more reluctant to hold, say, ANZ banknotes delivered from an ANZ ATM than they would be to hold an ANZ demand deposit (as they were doing just prior to withdrawing the notes through the ATM).  People happily hold notes from the (legally limited) private issuance in Scotland and Northern Ireland.
There's good basis for it too. Larry White worked through the equimarginal conditions showing that banks would be constrained against overissuance.

Tuesday 5 May 2015

D**khead bureaucrats

National MP Chester Borrows is getting his mouth washed out with soap by Labour's Iain Lees-Galloway.
Whanganui MP Borrows told his local paper that "d***head bureaucrats" had adopted an unbending stance to enforcing health and safety rules, which had led to growing concern about the regulations.
A farmer had been issued an infringement notice because five quad bikes helmets had each been hanging on a wall behind a bike, not on the bikes themselves.
Borrows described health and safety inspectors as enforcing sometimes "bull**** rules", at a Parliamentary select committee last week, the Wanganui Chronicle reported.
His comments have incited the wrath of Labour's spokesman for workplace relations.
I'm imagining Question Period:
Hon Iain Lees-Galloway: To Whanganui MP Chester Borrows: Mister Borrows is said to have stated that the inspectors undertaking on-farm safety inspections are d*ckheads. Question for Mister Borrows: is this true?
Hon. Chester Borrows: Yes, it is true. The inspectors have d*cks for heads.
More seriously, though, MPs might want to keep the d*ckhead constraint in mind when writing legislation and regulation. Regulation and legislation can look very different when there are no officious little tyrants in any of the agencies. In the real world, regulation has to be robust to the chance that it might just get enforced and interpreted by d*ckheads, as small a minority as they may be in any particular agency.

Note too that helmets on quad-bikes are hardly panacea.

I leave you with Peter Venkman. Is there any movie that better illustrates the perils of regulatory agencies gone mad?

And the EconPop review:

Monday 4 May 2015

Salt taxes

So, the usual suspects reckon a salt tax would be a great idea in New Zealand:
First they pushed to tax fizzy drink, now public health advocates want a "salt tax" slapped on everything from hot chips to pretzels.

In a paper published in the Plos One international journal, Otago University of Wellington academics including health experts and economists argued we need to be weaned off our salt heavy diet.

This could include enforcing limits on the supply of salt, or taxing the ingredient before it was even added to your bread, tomato sauce or packet of chips.
Robin Hanson pointed to issues in the salt literature a few years ago:
A new JAMA study finds a strong correlation: the third of folks who eat the least salt die over three times as often as the third of folks who eat the most salt. Yet other studies almost as big find contrary effects. I find it quite disturbing that such big studies can show such different results; something is very wrong in big diet correlation study land.
Nick Wilson, in the NZ piece, argues that
"Politically it's something that a government could do to save a lot of money with no public outcry."
Yeah, there's never civil unrest associated with salt taxes.

All your relief is belong to us

The Nepalese government is expropriating all quake relief donations. Via @samfromwgtn, here's the Ekantipur Report:
The Nepal Rastra Bank (NRB) issued a circular to A, B and C class banks in the country on Thursday afternoon stating that all the amount deposited in them for the purpose of relief for Saturday’s Great Quake will be automatically transferred to the Prime Minister’s Relief Fund.
“Due to the disaster caused by the Great Quake, all the accounts opened in banks and financial institutions by different organisations for collecting donations will be earmarked and the amount in them will be transferred to the Prime Minister’s Relief Fund,” read the circular.
Meanwhile, the UN pleads for the Nepalese government to stop holding up aid relief:
The United Nations has urged Nepal to relax customs controls which it says are holding up deliveries of aid to survivors of last week's earthquake.
UN humanitarian chief Valerie Amos said Nepal had a duty to provide faster customs clearance for relief supplies.
Many people are yet to receive the aid, which is piling up at Kathmandu airport, a week after the 7.8-magnitude earthquake on 25 April.
Nepal lifted import taxes on tarpaulins and tents on Friday but home ministry spokesman Laxmi Prasad Dhakal said all goods arriving from abroad had to be inspected.

"This is something we need to do," he said.
So there are stupidities worse than those we enjoyed in Christchurch, where it remained illegal to build a secondary flat in your house even after 12000 houses were destroyed.


I reprised this post at a symposium on CEO pay at Otago University on Friday.

Here's my presentation - I had a half-hour to generally survey the lit on why CEOs are paid what they're paid.


Note that I here overestimated the pay ratio in New Zealand when I contrasted the 25:1 CEO:worker pay ratio with America's 300(ish):1 ratio. Helen Roberts, who followed, noted it's only about 17:1 here.

In global markets for talent where highly skilled CEOs can move to the spots where they can add most value, should we really celebrate relatively low CEO pay in NZ? Doesn't it just mean that we haven't really any of the kinds of firms that warrant having the very best managers?

I spent a fair bit of time cautioning against our importing American narratives about pay trends without actually checking NZ data.

Friday 1 May 2015

NBR on the glories of CERA

Chris Hutching over at NBR continues hitting the Christchurch Rebuild beat. An excerpt from his latest. It's subscription; you should subscribe.
The legacy of CERA is yet to be fully evaluated. On the positive side the organisation oversaw the removal of damaged buildings that might have remained for longer.
But it has proved less successful at managing the rebuild as private sector developers have raced ahead and completed many new office developments on land outside CERA’s control.
As a result, the shape of the city is nothing like the rebuild blueprint unveiled by Prime Minister John Key in 2012 amid much hoopla. The central city is shaped more like a dog leg along Victoria St/Durham St and Cambridge Tce on the western bank of the Avon River, with the other part of the leg extending along Cashel St. 
Cathedral Square has just a handful of operating buildings.
According to many locals, the Crown via CERA acquired land it never needed, maintained acquisition designations over other blocks for too long and paid too much for properties.
This means unless the Crown is prepared to take a loss, the cost of the central city land owned by CERA will be too expensive for developers for many years. Selling it cheaply might also affect values of developments currently under way.
Predictable and predicted. Heckofajob, folks.