The quake vote

Were I still in the business of proposing future honours research projects at Canterbury, I'd be pitching this one. Anybody please feel free to run with it: I'd love to know how it goes.

The National Party decisively won the 2014 election, taking the Party Vote in all but the poorest of Christchurch suburbs. While National polled well even in Christchurch's more earthquake-affected Eastern suburbs, National polled well everywhere. 

Take 2008, 2011, and 2014 polling-place election data. Combine it with Census data for the meshblocks forming the natural catchment for each polling place. Predict National's 2008 party vote on the basis of underlying demographic characteristics. See whether changes in those characteristics predict changes in local-level National Party support in 2011 and 2014 for areas outside of Christchurch. Then, add in CERA data on land earthquake status in Christchurch as additional explanatory variable for Christchurch in 2011 and 2014. Christchurch's poorer neighbourhoods were also its more quake-affected ones. Was voting in quake-affected poorer Christchurch neighbourhoods substantially different from voting in poorer Auckland or Wellington neighbourhoods?

Can we reasonably interpret Christchurch's pro-National vote as endorsement of the handling of the rebuild? If more quake-affected polling places returned a higher-than-otherwise-expected National vote, then perhaps we can. If National fared more poorly than expected in the more quake-affected polling places, then perhaps not. You could also exploit split-ticket voting here. Informal Twitter discussion after the election suggested Labour voters would support their local Labour MP while giving their Party Vote to National as expression of disapproval with the Labour leadership or of support for National's overall policy agenda. Was split-ticket voting in Christchurch different from split-ticket voting elsewhere, correcting for the pre-quake Christchurch split-ticket vote in 2008? Was Gerry Brownlee's electorate vote stronger or weaker than we might expect for a government Minister?

If it is possible to get EQC and CERA data on the proportion of completed earthquake claims in each meshblock, that would be a fine additional variable. Finally, if you have time, give some thought to how migration from 2008 to 2014 might have affected results: would the out-migration of the worst-affected residents introduce attenuation bias?

I would love to know how EQC completion rates affected National's Party and Electorate votes.

Strategic voting on the right

So the latest chatter on the NZ right is that strategic voting for the Conservatives is a great idea. I'm going to disagree.

Under New Zealand's MMP system, a party enters Parliament on earning one electorate seat, or 5% of the Party Vote. In the former case, the MP enters Parliament with however many additional MPs the Party would be entitled to if there were no threshold in the Party vote: 2% of the vote gets 2% of the seats, if you have an electorate. If you don't have an electorate seat, and you get 4% of the vote, those votes are wasted: the composition of Parliament is determined by the Party Votes of those voters supporting parties that enter Parliament.

And so what do you do if you're on the right, if you want a National-led government, and if you're worried that National will lose if the 4% (or thereabouts) gained by the Conservatives is wasted? You could be tempted to vote Conservative to help push them over the line so they go into coalition with National. National then isn't forced to look to Winston Peters and New Zealand First for support.

I think this reflects short-term thinking. Winston Peters is near retirement. After he has retired, it seems pretty unlikely that New Zealand First will continue. The Peters personality cult will end. And, for a single retirement term, Peters' price may more likely be in approbation than in real policy.

If the Conservatives enter Parliament this term on a strategic vote, we might expect them to be around for a couple decades. They're socially conservative and, thus far, fiscally incoherent. Maybe they'll increase alcohol excise four times over, maybe they won't. They propose tax cuts but no spending cuts; Christine Rankin said they'd square the circle by turning a billion in alcohol excise revenue into four billion.

I wonder whether alcohol taxes could really go up by enough to make that happen: we start getting into tax territory where I'd be real nervous about applying current point estimates of the price elasticity of alcohol demand. The usual point estimate is -0.44: a 100% increase in the price of alcohol would result in a 44% decrease in consumption. A 133% increase in excise means about a 40% increase in the cost of low-priced beer and a 103% increase in the price of low-cost spirits in New Zealand. A 133% excise hike reduces consumption of low-priced beer by about 17%, so you get a 110% increase in revenue for the 133% increase in tax on beer, assuming no substitution over to home brewing and distillation. I'd expect things get more price elastic as you keep hiking things further (the income effect has to start biting sometime). I doubt you're into backward-bending territory with a 400% revenue increase, but taxes are going to do far more than quadruple to get quadruple the revenue. I really don't like where that's heading.

It's that kind of populist socially-conservative nanny-state knee-jerk economic incoherence that I expect a lot more of if the Conservatives get embedded into the system. Hey, let's propose a fiscally incoherent platform and then wave a referendum wand to find out how to plug the hole!

Is getting a third National term without NZ First really worth getting the Conservatives into Parliament? I suppose it depends on your discount rate. I don't like the long game on this one. I'm sure National could work with the Conservatives and make something decent out of it, but it doesn't seem a particularly good strategic vote for social moderates or liberals on the economic right who care about policy rather than just about keeping John Key in office.

Maybe Paris is worth a mass, but is Key really worth a Craig? I'd really really really prefer that National go into coalition with either NZ First or the Greens, or even a grand coalition with Labour.

Conflicts disclosure: I'm modestly short on the Conservatives' crossing the 5% threshold at iPredict, but long on National winning.

Update: Conservative leader Colin Craig has clarified the party's position: they want to hike alcohol taxes, but not to $4 billion. He also notes that our excise system "is nowhere near consistent with Australia's." He should note that the Australian system is nuts. The anti-alcohol campaigners rightly point out that the WET is distortionary and messes up relative alcohol prices. He also notes that alcohol is cheaper than water. When the kitchen faucet at my house starts supplying Emerson's at no charge, we can have a talk about that.

Why not a teal coalition?

After the Green's described themselves as more pro-market than National last week, I tweeted:

Norman is over-stating a bit, but a Green-National coalition does have some appeal if it merged the best of both. http://t.co/uFEc1kyNkK
— Seamus Hogan (@seamus_hogan) August 27, 2014

Will Taylor replied that he and Matt feel that NZ needs a real blue-green party.

@seamus_hogan as @TVHE and I often discuss,NZ needs a real blue-green party.
— Will Taylor (@WillTaylorNZ) August 27, 2014

I think they were thinking of a new party. But I don't see why it would not be feasible for the current Green party to enter into a governing coalition with National after the election this year. If National get enough seats to govern alone, the minor parties will have no bargaining power (although, I still think the Greens should try to form a coalition, for the reasons below). But if National falls short of that mark, they would likely be very open to a partnership with a single, stable, reasonably-non-crazy minor party. The Greens would just need to decide what are the one or two key issues that are really important to them and that are not unthinkable for a pragmatic centre-right party--e.g. 1. clean waterways and a serious policy on carbon emissions, and 2 funding for child-poverty initiatives--and then agree to throw away some of the minor stuff like their positions on monetary policy. The long-term advantages to the Greens would be enormous:

• The alternative is likely to be not being in government at all, or being in government with a coalition with Mana, Internet, NZ First, and Labour, which is probably a brush a principled party would not want to get tarred with.
• It would make credible for a long-time that the Greens are prepared to work with either major party to further environmental issues, and so give them much more bargaining power with Labour after future elections.
• Any move on environmental policy achieved in a coalition with National, even if not as strong as could be agreed to by Labour, would be sustainable beyond the next election and could be strengthened then. In contrast, a strong ETS negotiated with Labour might not survive beyond the 2017 election. 
• Where their policies are more market oriented than National's (pricing water appropriately for dairy farmers, not discouraging high-density living in Auckland), having the push come from the Greens would enable National to implement those policies without fear of a backlash from the left. 

I am deadly serious about this. Why not? 

Somebody arbitrage and fix please

I've been explaining to folks 'round the office why we might wish to pay more attention to iPredict's markets on who will be Prime Minister than to the vote share markets. And I thought I might share it with you.

National's back up over 70% in the PM.National contract. If National wins, that contract pays $1; if they lose, it pays $0. It dropped into the 60s last week during the publicity around the Hager book, but it's now back up.

But, if we look at the major party vote share markets, it's hard to see how National could possibly be 73% likely to win. National's predicted to get 43% of the vote; Labour and the Greens are predicted to get 43% of the vote; minor parties get 14%. While NZ First may be more likely to go into coalition with National, Internet/Mana isn't, and Conservatives' wasted votes, if they get 4.4%, disproportionately waste votes that otherwise would have gone to National.

There's a bit of a problem in all the vote share markets though. You can only bring so much money into iPredict at a go, and folks might there be liquidity constrained. The winner-take-all markets can then just be more interesting. The VS markets, paying off at a penny for every percentage point earned by the party in the election, give little chance of large gains or losses. You can sink a whole pile of money into that market to get maybe a cent or two's return on a 43-cent investment. It's not all that great. The PM markets provide a less certain return, as there's bigger chance of large losses if your expectation of the probability is wrong or if the wrong side of the weighted coin turns up, but the 70 cent investment either gets you a dollar or it gets you nothing.

How can we tell that it's the continuous payout structure? iPredict also has a market where the National Party vote share pays out in buckets: one contract pays $1 if the vote share is over 43% (and $0 otherwise), another at $1 if the vote share is over 43.5%, another for 44% and up, and so on through 49%.

In the vote share (continuous) market, you pay $0.43 for a contract giving you $0.01 for every percentage point of the National vote. In the vote share (discrete) market, at current prices, you would pay $0.90 for a contract paying out at $1 if National gets more than 43% of the Party Vote. You'd pay $0.83 for a contract paying $1 if National gets more than 44% of the Party Vote. You'd pay $0.67 for a contract paying $1 if National gets more than 45% of the Party Vote. You'd pay $0.59 for a contract paying $1 if National gets more than 46% of the Party Vote. 46.5% is at $0.55 and 47% is at $0.48. So the market, in those bucketed contracts, expects National to get between 46.5% and 47%; the parallel Labour ones have Labour getting between 28% and 29%. That's rather more consistent with a 70% chance of National's forming government.

But watch for Winston. NZ First is at 4.8% in the standard vote share market, but he's also odds-on to take more than 5.5% of the vote. The Conservatives only have a 29% chance of topping 5%.

Somebody with time ought to go in and fix things so there isn't free money sitting between the bucketed and continuous vote share markets.

Value for Money: election broadcasting edition

New Zealand subsidises party political advertising during the election campaign. Parliament allocates funding to the Electoral Commission for the Broadcasting Allocation, which funds short political broadcasts. It appears that Parliament allocates a fixed amount of funding, which the Electoral Commission then divvies up amongst the various parties in accordance with their support.

I generally oppose the Broadcasting Allocation. Mechanisms like this always need to tread a careful line between overly advantaging incumbents and providing too-generous of taxpayer support to fringe movements opposed by most voters. So National and Labour get about two-thirds of the monetary allocation and just under half of the available minutes.

But, if we're going to have this kind of thing, I can think of no better use of the money than its being provided to The Civilian Party. Recall that The Civilian Party is something of a protest movement promising free ice cream and llamas. The New Zealand Taxpayers Union, which I generally support, has opposed this use of government funding. But where the funding comes out of a fixed pot, it's only at the expense of the other parties: were The Civilian Party's allocation removed, the other parties' allocations would be increased.

I'm willing to bet that viewers will receive far more utils from the two minutes of Civilian Party advertising than they will from that of any other party. Funding reallocations away from The Civilian Party will reduce total national utility. Redirecting funds away from the other parties and towards The Civilian Party, on the other hand, seems a fine idea. 

I think the NZTU got this one wrong. 

In the alternative, I humbly submit my request to get to be the one who decides which parties are really jokes in 2014. The list isn't short.