Friday 29 January 2016

What is seen and what is unseen: Kitchen costs edition

Christchurch planners failed, post-quake, by not removing the restriction on secondary units in houses. Adding a few walls into a relatively undamaged house with spare rooms and turning one of those rooms into a kitchen would have been the simplest way of adding new dwellings post-quake, when insurance was hard to come by and new builds during aftershocks were ... difficult.

But rules against secondary suites have costs even outside of emergencies. Those costs are often unseen. If your family situation requires a home with secondary units in it, and those don't exist, the harms you experience are unseen by the planners.

Gary Sturgess's not knowing the house he purchased was not properly consented made visible some of these unseen costs. He bought a house with secondary suites built into it because it was important for his family to have them. Then Council told him those units were not consented and he would have to tear them out.
Palmerston North resident Gary Sturgess cannot believe how much red tape there is over a kitchen sink.
The particular sink is part of downstairs rooms at his Ruahine St home where 21-year-old granddaughter Georgia Garrett, who has Down syndrome, is learning independent living skills while under the same roof as mother Tania, aunt Jacqui and granddad Gary.
The family bought the house 2½ years ago, having chosen to live together after a difficult year when Sturgess' wife Valerie had died. 
The home had everything to enable three adults and a teenager to live together for support, while each had private space, a bathroom and somewhere to prepare a cup of tea or basic meal.
But a few months after purchase, a letter from the city council told them the two downstairs units did not have planning consent.
Sturgess was taken by surprise, and appalled by the initial estimates of the cost of putting things right.
Council head of planning services Simon Mori said the presence of a kitchen sink was used as the yardstick to decide whether a unit or sleepout was self-contained.
"The building would then have everything it needs for a person to live there."
And if kitchen sinks were installed legally, it required a building consent, which triggered a review of whether the building work also met planning rules.
The council is in the process of reviewing residential zone rules to give people more choices about building homes and make it easier to have just one dependent living unit on their property, but the changes were unlikely to go far enough to cover Georgia's sink.
In Christchurch's case, I think the real why was that rich folks in Ilam didn't want neighbours to be able to accommodate students, and Council cared more about rich west-side NIMBYs than about poor people in the east who lived in sheds. In Palmerston, I don't know.

If the house had never been built as it was, the harms of Council's policy would be unseen. Sturgess would never have bought the house and would have been forced into accommodations less well suited to their needs. Council cannot anticipate the needs of different families, much as they might like to believe they can fully anticipate such needs and issue detailed directives so that housing matches what they think needs might be.

But Sturgess bought the house. And unseen costs are now visible. The costs of removing the sink?
And it leaves Georgia with a problem about washing her dishes.
"I make sandwiches for lunch, I make my breakfast – where am I going to put my dishes?"
The choices would be to use her bathroom, or the laundry sink, or the upstairs dishwasher – nothing like the conventional habits of independent living.
These kinds of rules should change.

Thursday 28 January 2016

The Poverty of Inequality Reports

My column in last week's NBR went through the latest Oxfam report on global inequality.

Among the problems:
  • Any chart showing the time series wealth of the n richest people today has a strong bias towards showing an increasing trend. Anyone who was on last year's top-n list but had a poor run drops off the list, with his decline not measured; anyone who didn't make last year's cut but did this year is pretty likely to have had good returns recently. A chart showing the time-series wealth of the 62 people who were the richest people in 2002 would have a different pattern than a chart showing the wealth in prior periods of this year's 62-richest.

  • Failing to account for net debt held by people in rich countries with good prospects means that Oxfam was able to report a "number of billionaires" figure about half of what they'd otherwise have had to have reported. In their appendix, they note the problem isn't big because it doesn't take many of the richest billionaires to cover the total debt in the developed world, but the top richest billionaires are much richer than the ones that are 60th through 120th. 

  • Most of the movement in the wealth of the bottom 50% shown on their big headline chart is just fluctuations of the US dollar relative to others. I doubt that a very poor person in Sub-Saharan Africa notices or cares much about the US dollar exchange rate. The world's wealthiest, by contrast, will have globally diversified portfolios and far less subject to US dollar currency risk. Tell me the green line below isn't just tracking the US TWI. And note that the Credit Suisse report warns that the changes in wealth are strongly influenced by exchange rates.

It's also worth noting that the Credit Suisse report has 453,000 Kiwis in the world's top 1% by wealth. Just owning your own home in Auckland will get you pretty close to the line. And about half of all kiwis are in the world's top 10% by wealth. If you want to hate on the top 10%, or the top 1%, you might want to look in the mirror.

An ungated version of the column is now up here. You should subscribe to the NBR.

Wednesday 27 January 2016

Shortages and rationing: marriage edition

During times of shortage and crisis, everyone hates a price-gouger. And sensitive types argue for rationing and sharing rather than allocation by prices. Sure, prices might be more efficient, but they could induce social disruption. Allocating suddenly scarce resources by ability to pay confers rents on owners of the suddenly scarce resource. And the merits of allocation by price are smaller if supply constraints mean that you can't draw new supply into the market.

And so we come to Eritrea's man shortage. Let's take all the reporting here at face value - I've not verified any of it, and it could all be wrong. But it's interesting.
In what could pass as an ‘April Fool’s Day’ prank, activists have posted a memo on Facebook allegedly from the Eritrean government asking men to marry at least two wives due to an acute shortage of men occasioned by causalities during the civil war with Ethiopia.

A copy of a scanned decision of the Grand Mufti surfaced on the social media site on Thursday last week and showed the State of Eritrea calling for all men in the country to marry at least two wives and the government assuring that it will pay for the marriage ceremonies and houses.

The document, which could not be independently verified, says any man or woman who oppose the decision “will face a life sentence”. A Standard report showed that activists had translated the memo — written in Arabic — to:
“Based on the law of God in polygamy, and given the circumstances in which the country is experiencing in terms of men shortage, the Eritrean department of Religious Affairs has decided on the following: “First that every man shall marry at least two women and the man who refuses to do so shall be subjected to life imprisonment with hard labour. “The woman who tries to prevent her husband from marrying another wife shall be punished to life imprisonment.”
More than 150,000 Eritrean soldiers were killed during the secession war from Ethiopia between 1998 and 2000. At the time Eritrea had about four million people.
Ok. The recent war means they have a shortage of men relative to women. So consider the marriage market.

When there are more men than women, the women who are richest - who have the bundle of characteristics most valued by relatively scarce men in the Eritrean marriage market - will be able to afford husbands. And the poorest women will go without.

The law here forbids rich women, where rich means possessing the scarce resource, from hoarding husbands. Instead, the government's requiring that sharing be an option.

Isn't this a form of anti-gouging, pro-sharing legislation that, in other contexts, is usually lauded? It prevents scarce single men from exercising market power because already married men are forced into the market and compelled to be suppliers. It ensures that poorer women have access to the scarce resource, at the potential expense of richer women who are hoarding the scarce resource. And, presumably, the government will rescind the compulsion when the shortage has eased - otherwise they could run into the opposite problem.

Now, I'm a fan of the price system and am sceptical of anti-gouging arguments. And so I don't like the government compulsion here - as I don't like other anti-gouging legislation. Allowing sharing can be a reasonable solution where it's otherwise banned; we could well expect it to emerge naturally in some contexts. But compelling it makes me nervous - in this as in other markets.

Postscript: If you haven't read Marina Adshade's take on polygamy in her excellent Dollars and Sex, you should. Perhaps a future edition will consider the equilibrium where both polygamy and polyandry are allowed. She expects polygamy would result in a cohort of single men. But if women could also take on multiple husbands, that does not necessarily follow.

Tuesday 26 January 2016

Teacher turnover and student performance

The District of Columbia fires teachers from its public schools if they prove ineffective, as measured by their IMPACT evaluation system.

How does it work? Here's Adnot et al in a new NBER working paper:
DCPS [District of Columbia Public Schools] began evaluating teachers under IMPACT, a new performance-assessment and incentive system, during the 2009-10 school year. The design of IMPACT appears consistent with virtually all of the emerging best-practice principles. First, all teachers are evaluated on a multi-faceted measure of teacher performance (e.g., clearly described standards, the use of multiple teacher observations made by different observers and the use of student outcomes). Second, these evaluations are linked to high-powered incentives that include the potential dismissal of low-performing teachers and very large financial incentives for high-performers. Third, in addition to the feedback associated with the evaluations, teachers are provided with various supports, including instructional coaching to assist in improving their teaching practice.
It isn't just based on standardised test scores. Rather, it combines outcome measures with other evaluations of teacher performance for a better overall picture: students with poor absolute outcomes could still be doing far better than expected given their backgrounds.


The departure of poorly performing teachers improved teaching quality (the average replacement was of higher quality than the departing teacher). It also improved student achievement by a fifth of a standard deviation in maths, and 0.14 standard deviation in reading.

And, the benefits are concentrated in the poorest schools:
Forty percent of teacher turnover in high-poverty schools is among low-performing teachers (Figure 3). Our estimates indicate that there are consistently large gains from the exit of low-performing teachers in high-poverty schools. In math, teacher quality improves by 1.3 standard deviations and student achievement by 20 percent of a standard deviation; in reading these figures are 1 standard deviation of teacher quality and 14 percent of standard deviation of student achievement. In DCPS, virtually all low-performing teacher turnover is concentrated in high-poverty schools: on average, 1 percent of students in low-poverty schools experience low-performing teacher turnover.15
In the D.C. data, there was a lot of turnover of poor teachers in schools serving poorer communities. There was less of it in richer communities - somehow, those communities seem to have had smaller proportions of poor-quality teachers to start with.

Wednesday 20 January 2016

Marijuana selection

You're going to mess up any estimate of the negative effects of using marijuana if you do not control for that the kids who try marijuana differ systematically from the ones who do not try marijuana.

If, as you might expect, trying drugs earlier correlates with things like novelty-seeking, higher risk tolerance, and perhaps less conscientiousness, and if you don't have particularly good ex ante measures of those things, you're going to confound the effects of early marijuana use with the effects of being the kind of person likely to try marijuana early.

Three years ago, Ole Rogeberg critiqued the Dunedin Longitudinal Data people for having inadequately controlled for these kinds of selection effects. Dunedin's response was not particularly good. I'd noted it here. There are big problems when researchers use secret data.

Ole's critique was published here; Dunedin (Moffitt, Poulton et al) replied here; Ole's rejoinder is here

Now, in the first study of its kind, scientists have analyzed long-term marijuana use in teens, comparing IQ changes in twin siblings who either used or abstained from marijuana for 10 years. After taking environmental factors into account, the scientists found no measurable link between marijuana use and lower IQ.

“This is a very well-conducted study … and a welcome addition to the literature,” says Valerie Curran, a psychopharmacologist at the University College London. She and her colleagues reached “broadly the same conclusions” in a separate, nontwin study of more than 2000 British teenagers, published earlier this month in the Journal of Psychopharmacology, she says. But, warning that the study has important limitations, George Patton, a psychiatric epidemiologist at the University of Melbourne in Australia, adds that it in no way proves that marijuana—particularly heavy, or chronic use —is safe for teenagers.
The first quoted link goes to a paper that doesn't seem yet available. The second one controls for a broad array of ex ante characteristics and finds no effect of cannabis use. From its abstract:
A series of nested linear regressions was employed, adjusted hierarchically by pre-exposure ability and potential confounds (e.g. cigarette and alcohol use, childhood mental-health symptoms and behavioural problems), to test the relationships between cumulative cannabis use and IQ at the age of 15 and educational performance at the age of 16. After full adjustment, those who had used cannabis ⩾50 times did not differ from never-users on either IQ or educational performance. Adjusting for group differences in cigarette smoking dramatically attenuated the associations between cannabis use and both outcomes, and further analyses demonstrated robust associations between cigarette use and educational outcomes, even with cannabis users excluded. These findings suggest that adolescent cannabis use is not associated with IQ or educational performance once adjustment is made for potential confounds, in particular adolescent cigarette use. Modest cannabis use in teenagers may have less cognitive impact than epidemiological surveys of older cohorts have previously suggested.
And I wouldn't take smoking there as causal either. It's rather more likely a marker for other unobserved risk-preferences that correlate with the outcome variable and with drug use.

Remember this when somebody uses "Won't somebody think of the children" as first response against considering drug legalisation in New Zealand.

There's a decent write-up here.

Tuesday 19 January 2016

Netflix zones

A few points on the threatened Netflix crackdown on geounblocking:
  1. Whether Netflix turns a blind eye to geounblockers is a matter for them to discuss with the content producers selling them the licenses for different regions. It is totally fine for Netflix to check whether its users are breaking the terms of their licenses and to decide whether to enforce those terms. It would be not fine for the government to force them to do so, as it's just parallel importation. But this isn't that.
  2. In deciding whether to go hard, Netflix will have to weigh:
    1. The costs imposed on legitimate users who travel and whose family activity will look a lot like geounblocking - you're on business in the UK; family's home in the US;
    2. The losses from those who, like me, would unsubscribe from Netflix entirely if restricted to the content available to NZ subscribers;
    3. Its position with its rights-holders;
    4. Whether it is actually possible to hit VPN users and how far they really want to go: threatening account cancellation for those whose primary viewing country doesn't match the credit card might be effective for a lot of users who'd have a tough time sourcing US-based cards.
  3. On the customer side, those who VPN might need to be a bit more careful and stick with one country's content for a while until we see what they're actually doing. No more flitting over to the UK for more episodes of The Thick of It, then back to the US for other stuff.
  4. On the NZ government's side, they might consider whether New Zealand's doing something particularly stupid in requiring that streaming providers get NZ classification labels for streaming video. Netflix has a ton of long-tail content. The fixed costs of getting NZ labels for each title could well be unduly shortening that tail.
Working in close cooperation with the Film and Video Labelling Body and Netflix, the Office processed these submissions from Netflix rapidly. The submitter was organised, all material was able to be viewed and they provided clear information about their commercial priorities. The total regulatory cost for Netflix of establishing themselves as a fully compliant, responsible provider of on demand video to New Zealanders was less than $150,000. 
Ok. Netflix is $10/month for the basic package in New Zealand. A customer generates $120/year in revenue. So Netflix needed over a thousand customers just to cover the regulatory compliance costs of getting the NZ-specific labels. And Netflix, here, has about a third of the tv shows as are available in the US and about a third of the movies. I don't know how much of that is rights issues, and how much of it is costs of getting labels on oddball long-tail content. The OFLC cites classification costs of $1124.40 per title. So, for anything that isn't already NZ-rated, Netflix would have to expect that the title would draw in ten more NZ annual subscriptions to recoup that cost.

Note further that this will hit smaller NZ operators like QuickFlix or Lightbox even harder: they then either lag Netflix in content, or front-foot the regulatory costs per title over (presumably) smaller subscriber bases with others then able to coat-tail.

Wouldn't it make more sense to require that streaming content providers provide the country-of-origin's rating for content, and a link to an equivalences table for those who want to know what different countries' classifications mean? The OFLC even provides one, right here. Instead of on-demand streamers having to sort out classifications for each title in New Zealand, they'd just need a couple links on the homepage. And remember: those who want more stringent censorship can always get it by subscribing to Family First's new service.

In irony watch: I also subscribe to UK's NowTV, a Sky subsidiary, via geounblocking.

Chris Keall's piece at NBR is worth reading, as is the Stuff piece on whether the crackdown is feasible.

Monday 18 January 2016

Drinking culture

Anne Fox last year released a report on drinking culture in Australia and New Zealand. She's an anthropologist who'd previously looked at drinking behaviour; Lion commissioned her to have a look at New Zealand and Australia. I'd covered her report here. You can hear her chat on RNZ's Sunday programme from last year here.

Fox talked about how drinking culture mediates the effects of alcohol consumption. Alcohol is disinhibitory but the particular things that are disinhibited seem strongly culturally mediated. She gives the example of that social norms around public urination change in the drunken state as compared to sober, but not norms around public defecation. And so we see a lot more of the former than the latter.

For a more recent and worse example, consider the differences in drunken comportment in German culture, and that of some recent migrants to Germany. Why do some drunken crowds of young men think that sexual assault is fine, and other drunken crowds really really don't?

Fox's paper drew a fair bit of media critique last week on the back of an article in Addiction by Nicki Jackson and Kypros Kypri. Among the things they didn't like:

  • The study didn't have ethics committee approval.
    • But ethics committee approval wouldn't really here have been an issue: they had focus groups convened by market research companies, and Fox is a consultant, not an academic. Further, while Jackson & Kypri note that ethical approval boards vet proposals for methodological quality, the vast majority of research undertaken even at universities will have no such prior vetting: you don't need to go to a review board if you're just running regressions on established data, for example. 
  • Fox downplays links between alcohol and violence, ignoring studies showing correlations between alcohol and violence across "a broad range of cultural contexts."
    • But their source doesn't really show that. Rossow looks at alcohol and homicide across 14 European countries, broadly grouped as southern Europe, central Europe, and northern Europe. Before reading for their results, I tried to guess what Fox would have predicted. She noted that Anglo-Saxon cultures take drinking as bacchanal, where more of the rules are suspended where southern European ones have drinking more successfully integrated into life and where rules aren't suspended. So, following Fox's thesis, I'd expect the weakest links in Southern Europe.
    • What does Rossow find? The weakest links are in Southern Europe. And Rossow's conclusion talks about the differences in drinking culture between the Nordic countries, where drinking to intoxication is more common, and Southern Europe, where drinking is just a general part of dinner. Rossow writes: "Furthermore, there also seem to be cultural differences in drinking context, particularly drinking with meals, when comparing northern and southern European countries, which may add to the potential of alcohol consumption leading to violent behaviour." 
    • It is ... strange ... to cite Rossow in an anti-Fox piece. I'd have thought Rossow's findings entirely consistent with Fox's thesis. Note that I'm not endorsing Rossow's method here: it's a pooled cross-section that only has alcohol sales and a constant on the right hand side: surely a host of omitted variables affect both homicide and alcohol consumption. But if you're going to cite it...
  • Kypri goes on about limitation of trading hours in Newcastle and how that reduced harms; nothing about how 24-hour licensing in Manchester (UK) only affected the times of harms, not the quantity of harms. I don't know about the police procedure changes that he and Fox are arguing about, but I do note that Newcastle's downtown and waterfront have substantially gentrified - I would have expected things there to have cleaned up regardless of licensing times. 
  • They critique her recommending of education strategies for minors and parents, noting that education programmes have been pretty ineffective. 
    • Again, this is a bit odd. Fox spends a lot of time talking about how existing programmes are generally pretty terrible and how they could be improved. I suppose it could be impossible for any of them to work, but the critique remains strange. 
  • While recommending increases in the alcohol purchase age as "evidence-based", they ignore the work by Boes and Stillman showing that the NZ change in the alcohol purchase age had no effect on harms. I wonder if the public health side will ever notice that piece. 
I'd be a bit surprised if Fox didn't come out swinging here.

Friday 15 January 2016

Regulatory uncertainty breeds risk aversion

Combine tough potential penalties for failing to prevent accidents at workplaces with Worksafe decisions that can seem like ridiculous overkill to people who aren't Worksafe regulators and you've a recipe for some entrepreneurial activity.

Here's Radio New Zealand:
High school principals said they have been inundated with cold calls from safety firms, telling them they could go to jail without proper help.

New health and safety laws, which take effect in April, mean those with supervising roles in workplaces will have more responsibility for preventing accidents.

They also face tougher penalties of five years' jail or up to $600,000 in fines.

Worksafe's chief executive Gordon MacDonald said some consultants had been playing on anxiety about the new rules.

"It's those sorts of people that we want people to be wary of and not to rush blindly into seeking their services because they've been told that there's some dire consequence awaiting for them."

"Our position is that if people are doing the right thing now by the existing law, the changes that they need to make are probably not going to be that significant," he said.
Meanwhile, some schools are wondering whether they can continue with New Zealand's wonderful fun school playgrounds that allow a bit of risk, and others are quitting the profession:
Rotorua's John Paul College principal Patrick Walsh said it was particularly worrying that some principals were retiring early.

"When asked why they're retiring it's because of stress, burnout and concerns over increased liability for principals. Examples they cite are the changes in health and safety where they face up to $600,000 fines and five years in prison, and also concerns over a more litigious environment.

"The feedback we're getting from principals is that many deputy principals and those in middle management are not considering putting their hand up to be principal."
I don't doubt Worksafe's assertion that they wouldn't apply the big fines or penalties except in bad cases.

But if they can't prove it to the principals affected, they're going to help kill a wonderful part of New Zealand - regardless of their intentions.

Worksafe's mythbusting article suggests schools that are behaving well needn't worry. I'm glad I'm not on our local school board because I have no clue what Worksafe might deem "reasonably practicable." And I can understand Boards who might think that having a professionally produced plan might be part of demonstrating having taken reasonably practicable steps.

The Education Ministry helpfully compiles the various school toolkits for ensuring Worksafe at School. They include Toolkit 1, Toolkit 2, Toolkit 3, Toolkit 4, Toolkit 4a, ...

Thursday 14 January 2016

Part time work and the wage gap

The Herald's reporting on a new tool they've produced to investigate the gender wage gap. Enter your broad age and profession (ANZSCO 2006), and it will tell you how much more (less) you earned than a woman (man) of the same age and profession. How?
This annual calculation makes the assumption of working 40 hours a week and 52 weeks a year. These rates are before tax.
There are a range of reasons which can influence the number of hours men and women work.
If an occupation has been selected we calculate the difference in male and female median hourly wages for that ANZSCO 2006 category and age group. If no occupation has been selected the overall difference in median hourly rates is displayed.
Last year, I'd noted that there are some pretty substantial differences in full-time and part-time work choices that affect the overall pay gap results:
One simple change could almost halve measured pay inequality. What is it? Have women replicate men’s split between full-time and part-time work. Ok, maybe that’s not so simple. But while there are 7.05 full time male workers for every part-time male worker, there are 1.96 full time female workers for every part-time female worker. And part-timers always earn less than full-timers. Interestingly enough, part-time female workers earn more than part-time male workers – for the obvious reason given those numbers.

If you re-weighted the pay gap using women’s median earnings for full-time and part-time work, but men’s split between full-time and part-time work, the pay gap would drop from 11.9% to 6.6%. And that’s without controlling for a pile of other important stuff, like time spent outside of the workforce or differences in education background and the like.
The mix between part-time and full-time work matters. Part time work generally pays less per hour than does equivalent full-time work - except in some higher end contracting that won't much be evident in median earnings anyway.

If we look only at full-time earnings, men make $25 per hour and women make $23.02. Or 92 cents for every $1 of male earnings. If we look only at part-time earnings, men earn $16 per hour and women earn $17.65 per hour, or $1.10 for every $1 of male earnings. If we bundle those both together, because a greater proportion of women are in part-time employment which pays less overall, you get a larger pay gap: women earn $0.88 for every $1 of male earnings.

So, what to do about it? I'd suggested (as a first cut) equivalising things so that you were comparing men and women on the same basis, such that they'd have equivalent proportions of men and women.

When I asked the Herald why they hadn't accounted for full versus part-time employment, they noted they were following Stats' recommended procedure:
We can measure a gender pay gap for either full-time or part-time workers separately. When we do this, we find that for full-time workers only, the gap is smaller but has a similar up-and-down pattern over time as the ‘total’ gender pay gap. For part-time workers, the gap reverses – women who work part time typically earn more (per hour) than men who work part time.

When we separate workers into full-time and part-time groups, we hope to remove the differences caused by the types of jobs that offer (or don’t offer) part-time hours. However, splitting workers into full-time and part-time work can change the balance of other factors that affect pay, such as age. For example, females working part time are more likely to be older than males working part-time.

Overall, we recommend using the median hourly pay across all workers, rather than using full-time or part-time workers separately.
That's all well-and-good, but you can't really go from there to talking about the resulting gap reflecting failures in equal-pay-for-equal-work, as some of the quoted folks in the story then do. Part of the salary bundle in part-time work is the flexibility it gives you. That is worth something to those in part-time work or they wouldn't be choosing it. And because it is valuable to employees and costly to employers, it draws a pay penalty.

I really can't recommend strongly enough that folks running the pay equity beat read Claudia Goldin's summary of the state of the literature. It was her 2014 American Economics Association Presidential Address. Or, just listen to her interview with Kathyrn Ryan from 2014.

Wednesday 13 January 2016

Choosing censorship

Over the Christmas break, I saw a bit of Twitter mocking of the new Family First streaming video service. I love that this service exists. I won't use it, but everyone who hates censorship should celebrate this development.


There is even less need for a New Zealand Censor's Office to classify or censor online streaming options. The case for its doing so was always pretty dubious. The same technology that delivers the content also obviates the need for OFL classification: there isn't much that would stream in New Zealand that hasn't been rated overseas already, so under a reasonable regulatory regime that we do not currently have, they could just put on the overseas rating.

Reputation constraints already give Netflix and others sufficient motivation to avoid messing up the ratings: there would be ...adverse headlines... if one of them served up pornography under a G rating.

But suppose that there are some parents who:

  1. Just can't understand what the foreign ratings mean;
  2. Can't be bothered to look up more details about the content from any of the numerous sources available - even IMDB now has a "Parents Guide" for films;
  3. Want to make sure their kids don't see anything they find objectionable.
They now have a good option. Subscribe to the Family First option, set the controls for whatever language, violence, or adult themes you want, and done. The folks with high demand for this flip over to Family First; everyone else can be left alone. 

In New Zealand, I expect that rights arrangements are a fairly binding constraint. But as licenses expire and Netflix buys up worldwide distribution rights on a whole pile of content - including potentially weird foreign content that's never been NZ rated - the ratings regime is going to be a binding constraint. 

And then Netflix will have to decide whether to bother getting NZ ratings on a pile of fringe demand arthouse stuff, or just not offer that content to NZ subscribers. The latter's a lot easier - and especially since they can't really be outcompeted on this margin: Anybody who fronts the fixed costs of classification fronts them for every provider who wants to distribute that content. 

Would it really be that terrible to just let providers here use American, or European, classifications even for R-rated material when anybody can, in two clicks, find out anything they want to know about that content - and when those who are really really sensitive can just sign up to Family First?

Against Jargon: Feynman edition

Jargon is good for two things. The first is a good one; the second, not so much.

Let's start with the good. Jargon is a convenient shorthand among experts, allowing them to convey a complicated and lengthy idea in a single word. Within an established community of experts, you don't need to reconvey the whole parable or theorem each time. Darmok and Jalad at Tanagra is sufficient: everybody who matters knows what you mean, and you can just get on with things.

But when that shorthand exists for complicated concepts, they'll get appropriated by folks who want to sound like they know what they're talking about but who really don't.*

And so we come to Feynman:
I think for lesson number one, to learn a mystic formula for answering questions is very bad. The book has some others: 'gravity makes it fall;' 'the soles of your shoes wear out because of friction.' Shoe leather wears out because it rubs against the sidewalk and the little notches and bumps on the sidewalk grab pieces and pull them off. To simply say it is because of friction, is sad, because it's not science.”
Feynman’s parable about the meaning of science is a valuable way of testing ourselves on whether we have really learned something, or whether we just think we have learned something, but it is equally useful for testing the claims of others. If someone cannot explain something in plain English, then we should question whether they really do themselves understand what they profess. If the person in question is communicating ostensibly to a non-specialist audience using specialist terms out of context, the first question on our lips should be: "Why?" In the words of Feyman, “It is possible to follow form and call it science, but that is pseudoscience.”
Be cautious with jargon.

* Like when public health people use the term market failure

Tuesday 12 January 2016

Data integrity and fraud detection

Lindsay Mitchell raises an interesting problem.

In 2011, the Department of Labour matched HLFS employment survey data with benefit data and found:
About 40% of people on work-tested benefits may not be meeting their labour market obligations, as they appear to be either working too much or searching too little.
The backstory Lindsay provides is excellent - it looks like the Ministry tried to bury the paper, and it came out later accidentally. Lindsay only got it with the Ombudsman's intervention. Go read her whole post. And she gives one plausible non-evil reason why the Ministry might have wished to bury it:
But imagine a beneficiary reads or hears about how a survey they are being forced to participate in is being checked against their Work and Income records. For the welfare abuser, that would merely tip them off to lie more consistently to government departments.

Data-matching is being used increasingly but its effectiveness lies in keeping the public in the dark. There's an irony at work. Non-transparency is required to improve integrity of systems.

So ultimately that's where I find the most convincing rationale. But that leaves me with a dilemma.

As a long-time critic of the welfare system, the findings vindicate or illustrate my concerns about the rampant misuse of the system (which hurts genuine beneficiaries and the taxpayers funding it). Do I want to make a song and dance about these findings though, if the information acts to assist those with the worst motivations?
So long as no beneficiary actually was punished for truthfully answering an HLFS or HES survey, the odds of contaminating future survey responses are lower.

The most paranoid end of the distribution would expect that the government has been doing this forever and so always would have lied; the least paranoid end would either expect that the government weren't competent to actually match up records, or that Stats NZ wouldn't be lying about the uses to which their data is put. Without actual cases of "I know a guy who told the truth on the HES survey and *bam* lost his benefit", I wouldn't expect huge effects - but I have low confidence in that expectation.

But I think there's a way around it.

First, link up IRD and HES/HLFS and MSD data from last year through the IDI, along with whatever other administrative data seems useful. Use the IRD and HES/HLFS data to establish true cases of fraud. Use the rest of the data to get the correlates of fraudulent receipt. If the data allows for a reasonable predictive model, great! Save the parameters for next year. If not, abandon.

Then, if the predictive model had been decent, use next year's administrative data to forecast which recipients are at higher risk of fraudulent receipt - and have MSD follow up the higher risk cases. Drop from the sample anybody who was an HES respondent - it'll be a pretty small number anyway. You'll then be pinging those recipients who are similar to last year's fraud cases, but you won't be hitting anybody who was one of the survey respondents. After enough of a lag, bring the prior year HES respondents back in - their back-end data should have changed sufficiently that they won't perfectly predict any more, so they are not being punished for having answered truthfully. They're being audited if their characteristics are still very similar to those of high risk cases.

It won't be perfect - there'll always be some who'll lie on the surveys, just in case. But would there really be many who'd start lying because of this procedure?


Stephen King (the Monash economist) worries that Uber's surge pricing is ultimately unsustainable. Not because surge pricing fails to bring cabs into the market, but because people really don't like higher prices at times of peak demand.
It is not ignorance that leads to customer annoyance with surge pricing. Customers understand exactly what surge pricing does. And that is why they do not like it.

From the customers’ perspective, surge pricing does two things. First, it encourages more drivers and so makes it more likely that the customer can get home (or where ever else they are going) in less time (albeit at a higher - and possibly much higher - monetary price).

This is the economic ‘plus’ from surge pricing. Economists call this an allocative gain. It means that more mutually beneficial trade occurs because there are drivers who are only willing to drive for the higher price but there are also customers willing to pay that price. Setting a lower ‘normal’ price would just mean that the drivers stay at home and the customers don’t get home.

Second, however, surge pricing creates a transfer.

When I jump into the Uber car I don’t know if my driver only decided to work because of the surge pricing. He or she might have been out there anyway. And in that case, I just pay more even though the driver would have been there anyway. Of course, the driver also gets more. The money doesn’t disappear. It is a transfer. My loss through paying the higher surge price is the driver’s gain. So from an economic perspective, this transfer is neutral. But that doesn’t make the customer feel any happier.

So economists love surge pricing because it improves ‘allocative efficiency’. Customers tend to dislike it because it means all customers pay more, even if their driver would have been working regardless.
He notes that American bans on price gouging are fundamentally counterproductive: where customers really hate price hikes and would punish firms for it, firms already have incentive to avoid it - even if it's to the strong detriment of consumers. I've argued that this kind of reputational concern can induce a market failure in a post-disaster context. Christchurch really could have used some petrol price hikes post-quake, but nobody was doing it.

King rightly notes that, if surge pricing puts off customers enough, either Uber or a new competitor will come up with a better way of handling things:
For example, instead of surge pricing everyone, the price rise could depend on the customers history. Regulars get a lower price than those who have just downloaded the App due to the crisis. Of course, to encourage drivers, they would need to receive a uniform higher price. So Uber would have to sit in the middle and manage payments. This will most likely lead to lower profits for Uber in the short run. However, it will be a long run investment in goodwill.

And if Uber does not come up with a better alternative to its hated surge pricing, one of its competitors will.
Firms in other sectors behave as though they expect to be punished more for pricing to meet demand than for running out of product: stores run out of snow shovels in blizzards. And if some store always charged a premium so they could keep an emergency stock of snow shovels out back, well, that store would likely have no customers except during the blizzard.

King's mechanism would effectively save those emergency snow shovels for the regulars. But would taxi regulars really be willing to pay a premium on day-to-day traffic to ensure supply availability during peaks? Uber would have to be betting so. I'm not sure it's a bet I'd make - but it would depend on the premium they'd have to charge at off-peak times where they'd risk being undercut.

Monday 11 January 2016

I'm addicted to Mexican soda

Ok, maybe not.* But I've been having to read through some of the studies on the effects of Mexico's soda tax.

Chris Snowdon points to a new one in the BMJ. They run a panel fixed effect analysis using Nielson household consumption data looking to see whether consumption of taxed and untaxed beverages changed after the imposition of a peso-per-litre tax on non-dairy and non-alcoholic beverages with added sugar. They cite other work showing the tax was largely passed on to consumers.

What's interesting is that the behavioural response was largely due to reduced consumption among the poorest quarter of Mexican households. The poorest quartile reduced consumption by 35 mL per day, or 17.4%, by the end of the period - relative to the counterfactual established in the pre-tax period. Middle SES households reduced consumption by about 5%. Both groups increased purchases of untaxed beverages; we do not know whether or how much of any of this was substitution to sugar-added dairy drinks (if the tax were restricted to non-dairy sweetened drinks as described in the BMJ), fruit juice with lots of natural untaxed sugar, or home-made sweetened lemonade and the like.

Let's assume that they've got everything right in their panel metrics. I'm not familiar with a couple of their techniques, including Duan smearing factors, so will just take it at face value.

Why would it matter that the biggest response was among the poorest? A peso per litre doesn't sound like much (and isn't much in New Zealand money), but the minimum salary reported in the sample is 59.30.** So a peso is about 1.7% of the daily minimum wage. The New Zealand minimum wage of $14.75 gives a minimum daily salary of $118 for an 8-hour day. A comparable soda tax in New Zealand would then be set at $2 per litre - if the object were to make it roughly as expensive for lower income cohorts.

Yes, the excise tax, on average, was about 10% of the purchase price of a litre of soda. But it's an excise tax, not an ad valorem tax. A peso added to a 10 peso bottle would be different from a peso added to a 5 peso bottle. I would love to know what the ex ante price of the discount brand sodas in Mexico was.

Here in New Zealand, Coke on special is about $1.70 per litre. The discount off-brand product is about $0.80 per litre - less than half the price. Any per-unit excise has a much larger effect on the price of the cheapest good than on the average price.

If you put a 10% tax on soda in New Zealand, I wouldn't expect it to do much. You'd have reasonable substitution to off-brands among lower income or value conscious cohorts, but total effects wouldn't be huge. If you put in a $0.20 per-litre excise, I'd expect larger effects as it disproportionately hits the price of the cheapest product. If you put a $2 per litre excise, so that the effect on affordability for the poorest cohorts were properly copied over to New Zealand from Mexico, I would expect very large effects on soda consumption, and especially among the poorest cohorts. Demand curves do slope down.

I don't think any of the soda tax advocates here have mooted a $2 per litre excise tax. But I'd be surprised if we didn't start hearing calls to increase any soda tax, if one were implemented. It took a while for tobacco excise to hit $0.60 per cigarette in New Zealand. In 1994, it was $0.15, or $0.23 in today's money.

Other fun questions I've not elsewhere seen asked:

  • The Mexican tax seems to be per litre of sweetened beverage, regardless of sugar content. If I lived in that environment, in places where customers have access to clean water, I'd sell a concentrated syrup for dilution at home rather than a ready-to-drink product. I wonder whether anybody there is doing that. Alternatively, I'd sell a bottled sugar-free product with a sugar sachet attached to it with a rubber band. Mix your own!
  • Even if things aren't turning into syrups, you should expect an increase in the sugar concentration in sugary beverages: taxed for a teaspoon, taxed for a cup.
  • I don't know whether the tax applies to just a bag of sugar at the supermarket. There is an 8% ad valorem tax on "a defined list of non-essential highly energy dense foods". A bag of sugar is pretty cheap. Even if the 8% tax applies to it, an 8% tax on a kilo bag of sugar has got to be cheaper than a peso-per-litre of sugar-sweetened beverage. 
    • Enterprising children should surely be setting up lemonade stands and dodging the tax man. Here's a recipe for Mexican lemonade: about a quarter cup of sugar per litre. A kilo of sugar is 5 cups, so 20 litres per kilo. That would draw 20 pesos in excise tax alone, were it taxed as a beverage. I suspect that the kilo of sugar itself would retail for less than that, with or without an 8% ad valorem tax.*** Sweet sweet tax-dodging lemonade stands.
    • One also wonders about whether any of the purchased bottled water to which folks are substituting is being used in untaxed home production of lemonade. The folks who have the Nielson household sales data should be able to tell whether purchases of sugar have changed. Why wouldn't you check that and report on it?

* Just their radio.

** Mexico has a minimum daily salary, not a minimum hourly wage. They're here using an inflation-adjusted minimum salary.

*** One dated source has the reference price for sugar at 6579 pesos per metric tonne. If that's a wholesale price, it's 6.6 pesos per kilo. Retail might then be 15-20? An 8% tax would be less than 2 pesos on the kilo where the beverage equivalent tax would be 20 pesos. Sugar in NZ retails at around NZD$3/kilo, which would be about 35 pesos, but I'd be surprised if Mexican retail prices were close to NZ retail prices.

Thursday 7 January 2016

(Food) Truckin'

Reader Donald emails, on Wellington Food trucks:
Cafe owners in Mirimar are upset over the intrusion of food trucks on "their patch".

So, of course, they want their privilege entrenched.

Are the predators exploiting loopholes to steal livelihood from the cafe owners? Mostly no with a little bit of yes.

For a start food truck proprietors have to play by the same food safety rules as anyone else which means they pay the same fees to their local council as the cafe owners. They have to have the same equipment and fittings (depending on their products) and, in some cases, they actually have to have an unseen "home base" for food preparation and storage that is also registered etc. Some jurisdictions also require mobile operators to pay for an extra mobile traders licence on top of food premises registration. So the legal environment is identical for both groups.

The main overhead item that differs is rent. Of course you have to factor in that food truck operators buy their trucks outright. A truck that complies with food safety regulations and has the necessary equipment in it will still start at $50K and still require all the normal operating costs. But that is nothing compared to what cafe owners are paying in monthly leases. So we get back to the meta-problem: property prices. My experience of the industry (retailing at a market and supplying cafes) suggests that high lease costs force cafe owners into a business model that they would not necessarily choose. Generally they have to generate a lot of revenue just to pay to be the lease. This usually means 7 day operation which means lots of staff and all the hassles that involves. Even then there's not much profit to be made. Cafes tend to go for the safe options in terms of food offerings; they have to sit under the bell curve to ensure the revenue to pay the lease etc.

So although some food trucks will just serve coffee and sandwiches others can afford to try something specialised and drive to the pockets of the market that prefer Peruvian deep-fried guinea-pig to a ham sandwich. And the truck operators can make a living without working 7 days a week or having the hassle of employing staff.

The $1,000 permit for outdoor seating is the interesting statement. This "permit" will be one or more of three things. It may be a "licence to occupy" which is between the business and the Roading department of the council for occupying part of their street. More likely it is a resource consent (issued by Planning) for undertaking an activity in a public space. What really complicates matters is if the cafes have a liquor licence (issued by Environmental Services) as well in which case the confusalator is turned up to 11. Food trucks will never, ever get a liquor licence so that is out of the equation but many (most?) cafes do. And what is not clear from this story is where the trucks are parking and setting up their tables. If it is a private parking area then the permit/consent may be moot anyway.

Actually, operating a food truck is not a great job. Remember this is Wellington we are talking about: the weather can be atrocious and custom fickle. But they survive because they can deliver some things to their customers that static cafes generally can't. But if the regulatory environment and cost structures were more friendly to cafes food trucks might quietly disappear.
If the food trucks really are eating standing restaurants' lunches, rents in truck-friendly locales should be dropping relative to spots that aren't convenient for food trucks. Do we have any evidence on it? Do restaurants ultimately bear the incidence here, or owners of land in truck-convenient locations?

The RNZ story is here. Neat Places' listing of some Wellington food trucks is here. Here's the story of one of them. Here's the story of another.

Wednesday 6 January 2016

The Value-Added Fallacy

Andrew Coyne is great on Canada's Value-added fallacy:
Just now, Practical Men are quite convinced that, rather than pipe crude oil south or west for refining in foreign lands, we should be refining it here at home. How do they know this? Well, it’s obvious, isn’t it? We ship them bitumen, they ship us saran wrap and pantyhose. What we should be doing is moving into higher value-added activities….

You hear a lot of this sort of thing. We ship them coal, they ship us steel. We ship them logs, they ship us dining-room sets. At best, it betrays a basic confusion of concepts — what is sometimes called the value-added fallacy. What companies want are higher profits. What workers want are higher wages. What both want is higher productivity. It’s productivity that ultimately determines wages and living standards — not where you happen to be in the value-added chain.

This value-added fetish is often rooted in a kind of “techno-aesthetic intuition” (to use the economist David Henderson’s phrase) that certain activities — manufacturing rather than resource extraction, high technology rather than low — are more befitting of an advanced economy. Hence that most Canadian of fears, being “hewers of wood and drawers of water,” in a country with one of the world’s richest supplies of both.
We hear this a lot in New Zealand as well - even from Alan Bollard when he came back to visit from Singapore last year:
During a flying visit home to Wellington former Reserve Bank governor Alan Bollard has reflected on New Zealand's response to rising incomes in East Asia and the risk of remaining stuck at the low-tech, low-return end of the value chain by just pumping out more primary production.
I was more than a little sceptical:
I asked him there what's stopping Kiwi businesses from picking up the $20 notes laying on the sidewalk if there are such great returns in those activities: whether Kiwis are just stupid; whether there are regulatory impediments to their being able to realise returns; whether they're already innovating and he's not noticed it; or whether a lot of that work is really better done elsewhere and that pushes for value-added here might not be value-destroying.

He noted that Fonterra is constrained by its cooperative structure and that capital markets here might not be deep enough. I note that Fonterra is investing into Chinese dairy to have better understanding of and access to Chinese markets, that they're already doing a lot of milk processing beyond straight powder drying, and that opening to greater foreign investment seems a decent idea. I'm pretty agnostic about Fonterra's governance structure, but that too would seem a $20 note on the sidewalk: if they could be so much more valuable under a fully corporate structure, they will eventually convince their farmer-members of it.
Back to Coyne:
By contrast, the strange, unworldly theory to which economists so stubbornly adhere is merely to suggest that, rather than issue grand pronouncements on what sectors “we should” be investing in, based on little more than hunches, we would do better simply to compare the relative costs and benefits of each. If there are greater returns to be had from producing raw materials, then raw materials it is. Which offers the better returns: to sell crude whatsit for $6 that costs you $2 to produce, or to “move up the value-added chain” and sell refined whatsit for $8 that cost you $6?

And who better to make these comparisons than the people whose money is actually at risk? Refining bitumen is an expensive, capital-intensive business. If it were really wiser to refine it here than sell it to refiners elsewhere, investors are at least as capable of realizing it as anyone else. If instead they choose to export, why not trust their judgment — why, other than the sort of divine dogma the Practical Man claims to disdain?

The fox, it is said, knows many things, but the hedgehog knows one thing. The Practical Man knows nothing. But he knows it with utter certainty. [emphasis added]
The University of Calgary's Trevor Tombe warns of the consequent dangers:
This misunderstanding can have serious economic consequences. The first and most obvious consequence is that public subsidies to so-called value added activities expose governments (and taxpayers) to financial risks. Projects may or may not work out, leaving government to pick up the tab. These costs can add up. The Canadian Taxpayers Federation reckons the Government of Alberta under premiers Peter Lougheed and Don Getty blew roughly $2.3 billion by the early 1990s on failed attempts at diversifying Alberta’s economy (not adjusting for inflation). The biggest failure was NovaTel – a joint telecommunications venture between the Nova Corp. and Alberta Government Telephones, Telus’ predecessor – which eventually cost taxpayers over half a billion dollars. Not all of the Alberta government’s diversification efforts were failures, but as Ted Morton and Meredith McDonald found in their comprehensive review for University of Calgary School of Public Policy titled The Siren Song of Economic Diversification, the losers far outstripped the winners.

A broader consequence of subsidizing firms on the basis of their supposed value added is lower productivity in the overall economy. Suppose for a moment that labour markets function perfectly. In this case, the economic value of a worker is revealed in the going wage rate. Firms that have valuable jobs will be willing and able to pay this wage; those that don’t, won’t. A subsidy distorts this decision. With access to government funding, a firm could afford to hire the worker even if the underlying value of the job is low. This will deny the worker to other firms and the overall economy suffers. Simply put, a subsidy can shift employment towards subsidized activities that are potentially less valuable than others.
I expect I'll be picking up Tombe's primer on value-added fallacies when next the NZ government worries about too much hewing of wood and drawing of milk. HT: @StephenGordon

Tuesday 5 January 2016

The clean food fad

When everybody's looking for miracle diets, it's no surprise that quack gurus rise to meet the demand.
It’s not often that science intrudes into the world of ‘wellness’ fads. To become a clean eating guru, a cheery demeanour seems to matter far more than proper qualifications. Ella Woodward, Madeleine Shaw and Tess Ward all studied History of Art. The latter two then studied an online course with the Institute for Integrative Nutrition. This course, based in America, claims to be a ‘movement’ working to reverse the health crisis by promoting the concept of ‘bio–individuality’ — a concept coined by its founder Joshua Rosenthal (who eats a gluten-free diet). It hinges on the idea that one person’s food is another person’s poison.

The institute claims that the qualification it offers is ‘rooted in science’ — a claim which puzzles Dr Max Pemberton, Spectator Health editor and an eating disorders specialist. ‘The minute you scratch beneath the surface,’ he says, ‘you realise it isn’t.’

It is certainly rooted in commercial logic: the surging demand for wellness gurus means that those brandishing credentials are welcomed by an audience often mistrustful of mainstream medicine. The institute is happy to boast about this on its website, quoting a student who says that ‘with the ability to see clients before graduation, my education was paid for before it was completed’.
I wonder whether some of the Twitter angry is really hangry induced by the pursuit of ridiculous diets. I keep cookies near the computer, in case of emergency.

Monday 4 January 2016

A missing option

Nick Wilson and his usual coauthors survey the potential regulatory options for e-cigarettes in a viewpoint piece in the NZMJ. But I think they're missing an obvious option.
While e-cigarette usage has grown rapidly in New Zealand and around the world, the scientific evidence base regarding the net benefits and risks of these types of products at the population level remains uncertain. The health-based policy experience is also minimal. Here, we analyse plausible future regulatory options for e-cigarettes that the New Zealand Government could explore, and that further research could help clarify. These options include: (1) a full free market (an option we doubt is desirable for multiple reasons); (2) controlled increased access through: (a) pharmacy only, (b) pharmacy only plus sales by prescription/ to licensed vapers; (c) additional controls through non-profit supply/distribution (eg, public hospital pharmacies); (3) increased restrictions compared with current (eg, adopting a complete ban on self-imports and use). In addition, we consider mechanisms to improve product quality and safety, and argue that policy makers should take great care when regulating e-cigarettes, given the scientific uncertainty and the role of commercial vested interests. 
Ok, what's the missing option? The kind of regulated sales currently allowed for alcohol and tobacco where vendors are prohibited from selling to minors. We'll come back to this.

Wilson et al note that free and unregulated sales largely exist in the US and parts of Europe, but rule that out for New Zealand. Why?
It seems fundamentally problematic for society to allow a highly addictive drug (such as nicotine) to be sold in unregulated environments without health professional advice and support for quitting.
But surely that has to depend on whether there are substantial unforeseeable adverse consequences from that addiction! I experience minor withdrawal symptoms when I can't have a coffee; I enjoy coffee; I would hate to have to have doctor's permission for each cup. In a free society, these choices have to be left to the individual. Would they have a doctor on-site at every bar and off-licence to provide health professional advice to anyone buying a drink?

The main issue with addictive potentially harmful substances is that youths might lock themselves into long term consumption paths that they might regret as adults. And so the government restricts sales of alcohol and tobacco to children. What's wrong with that approach for e-cigarettes? Wilson et al say that just doesn't work - at least in the case of tobacco.
Existing tobacco outlets (especially dairies) appear to chronically break the law around tobacco sales (eg, 64% breaching regulations in one survey and extensive evidence of sales to underage youth25-28).
Ok, let's check their cites here.

25 is Quedley et al, 2008. 26 is Marsh et al 2012, which investigates changes 2000-2008. 27 is Gautam et al 2014, which looks at data 2007-2009.

Why do these years matter? In 2011, the legislation tightened up around sales to minors. Section 30 of the Act prohibits sales of tobacco products to people under 18; the 2011 Amendments increase the fines. Individuals can be fined up to $5000; body corporates, up to $10,000. So stuff from prior to 2011 might not apply all that well.

What about reference 28? That's Grendall, Hoek et al 2014. They looked at seven survey waves of ASH's survey of Year 10 students: 2006-2012. So it includes a bit of post-2011 data. What do they find?
Results Smoking prevalence declined significantly (8.1%) over the period examined (linear tend coefficient: −0.74; 95% CI −1.03 to −0.45, significant p<0.01). Friends showed a significant decline in relative importance as a supply source while caregivers and other sources showed a significant increase over the period examined.
Conclusions The findings show that social supply, particularly via friends, caregivers and others, such as older siblings, is a key tobacco source for adolescents; commercial supply is much less important. The findings raise questions about the additional measures needed to reduce smoking among youth. Endgame policies that make tobacco more difficult to obtain and less appealing and convenient to gift merit further investigation. [emphasis added]
So the only post-2011 data they cite doesn't really support that commercial supply is a big issue. And it doesn't look to have been a major issue before 2011 - at least among Year 10 students surveyed.

Before 2011, just over 10% of Year 10 kids (aged 14 - 15) who smoke got their smokes from shops. Since then, it's declined slightly to 10%. Friends are the main source of supply: those could be 17 year olds who bought illegally at shops, or 18 year olds who bought them legally. Maybe some of the drop in supply from friends was due to increased tobacco cost with the excise hikes; maybe it's just the ongoing decline in smoking rates that mean it's harder to bum a smoke off somebody. But if some of those friends were 17 year olds who'd previously purchased illegally, well, the substantial drop in 2011 would be consistent with retailers being more wary about selling to minors.

I suppose it's a judgement call as to whether 10% of youths getting smokes from shops constitutes "extensive evidence of sales to underage youth".

Sure, you can find retailers selling to youths in stings, but simply applying the existing fines a bit more thoroughly would seem a better answer than concluding we can't really restrict sales to minors - especially where it doesn't particularly look like retailers are the direct source of youth supply.

The NBR asked me for comment on a new NZ Taxpayers' Union report on tobacco taxation, which kindly cites me heavily. I told them:
"It is absurd that the government makes it difficult for smokers to access nicotine cartridges for e-cigarettes," he says.

"Smokers wanting to switch to that much safer alternative currently need to import their cartridges because retailers here are forbidden from selling them.

"That's fine for Wellington hipster vapers who can find the foreign suppliers, but not so fine for the lower decile groups where harms are concentrated. Why are we even talking about increasing the excise rate on cigarettes when allowing and promoting switching to vaping would do far more to reduce harm?"