Avoiding supply management

Canadians wanting to run a dairy farm have little choice but to deal with Canada's crappy supply management system. 

Well, unless you're the Canadian Government, and you're running a public sector pension scheme, and you want to make investments in dairy, and you know that supply management is crap.

In that case, you have the resource to jump through New Zealand's Overseas Investment Act hurdles and buy dairy farms here, where there's no supply management and you don't have to pay tens of thousands of dollars in quota fees to buy the right to milk a cow.

Here's Radio New Zealand:

The sale of a Canterbury dairy farm for more than $17 million to a company owned by the Canadian government has been approved by the Overseas Investment Office (OIO).

OIO approval was given in November for the purchase in the latest round of decisions for overseas investment of sensitive New Zealand land.

The transaction includes a medium sized dairy farm of 335 hectares and a neighbouring dairy support block of 72ha, also on freehold land at Hororata. They will be combined to create a larger dairy farm.

Applying for OIO consent was Ramsay Dairy Farm Ltd, wholly owned by the Canadian government and linked to a public pension investment scheme.

It isn't the first investment in NZ dairy by the Canadian Government, via Ramsay Dairy Farm Limited. Here's an OIA decision from 2015:

Decision	Consent granted Section 12(a) Overseas Investment Act 2005
Decision Date	12 November 2015
Investment	An overseas investment in sensitive land, being Ramsay Dairy Farm Limited’s acquisition of: a freehold interest in approximately 322.8995 hectares of land at 249 Domain Road, Oxford, Canterbury; and a freehold interest in approximately 34.6068 hectares of land at 282 Domain Road, Oxford, Canterbury.
Consideration	$18,613,673
Applicant	Ramsay Dairy Farm Limited Canadian Government (100%)
Vendor	Oxford Pastures Limited New Zealand (100%) Farm Partners Limited New Zealand (100%)
Background	The Applicant is ultimately, indirectly, owned by the Public Sector Pension Investment Board. The land is currently being used as a dairy farm. The Applicant intends to acquire the land for the purpose of dairy farming and milk production and will engage FarmRight to manage the land for that purpose.

I suppose it saves the Canadian Government from having to buy dairy quota. Would that Canadian farmers could do the same in Canada.

SOOBs and disamenities

Housing within Amsterdam's red light district trades at a discount. Here's Erasmo Giambona and Rafael Ribas.

We measure the externalities of prostitution by quantifying the discount that households require to live next to a brothel. In our tests, we exploit a unique feature of Amsterdam's Red Light District (RLD), area inside a perimeter naturally delimited by canals where private homes are located next to prostitution windows. Using a novel two-dimensional difference-in-discontinuity (DiD) estimator, we find that households require a discount as high as 24% on homes inside the RLD. We also find that this discount disappears when prostitution windows are forcibly closed by local authorities. By incorporating the exact coordinates of brothel closings, our empirical design allows us to establish a direct link between these closings and changes in price discontinuities. To estimate the economic impact on households outside the RLD, we look at the closings of all brothels in Utrecht (the fourth largest city in the Netherlands) in 2013. Households are found to have paid up to 12% of the value of their home to be some distance from prostitution. In both cities, the contraction of the paid-sex industry is also associated with a drastic reduction in crime rates. Overall, our findings suggest that the nuisances prostitution creates do more harm than good to residents. 

I wonder whether there's New Zealand data available on the location of brothels. Prostitution law reform and the emergence of suburban owner-occupied brothels, and varied council approaches to zoning and regulation, would provide plenty of room for diff-in-diff study. Red light districts could be rather different than smaller owner-occupied facilities. 

Vogons vs Backpackers

Looks like the Vogons are going after backpackers that provide tourists with lodgings in exchange for some work around the place.

Backpacker hostels face big fines if they continue the long held tradition of casually offering travellers free beds in exchange for unpaid labour.

Some industry stalwarts say travellers can't be bothered with the paperwork now required to legally work for accommodation, and they worry it will destroy hostel culture.

But the Labour Inspectorate is preparing to get heavy with those who do flout the law and is monitoring job advertisements on backpacker and work exchange websites.

There is a real tax and distortion issue here, but there might be a simpler solution. Backpackers will have an incentive to barter for cleaning services with backpacking patrons because PAYE and GST won't be imposed. But that could potentially be solved by having the hostels report the value of accommodation-nights provided under that kind of arrangement and charge FBT on it. That would get rid of the tax distortion while allowing mutually advantageous trades between backpacking tourists and hostels.

YIMBY strategies

How can YIMBYs overcome the NIMBYs? Local action and state-level policy reform says Kenneth Stahl.

Stahl argues that NIMBYs block development because of worries that increased supply will hurt the value of owners' biggest asset - their homes. I'm not sure that's right though. Upzoning will reduce the cost of housing while increasing the value of the newly upzoned land. And this should be especially true for neighbourhood-level upzonings as compared to broader upzonings, and it's the local ones that seem to draw the most local opposition.

But the problems with incentives facing councils have a lot of parallels with New Zealand's problems. 

Where local government there is debt constrained due to unfunded pension liabilities, they're debt constrained here because of debt limits, poor prior spending decisions, and voter reluctance to authorise debt because of sensible worries brought on by poor prior spending decisions. Where councils there get a share of sales tax revenue that distorts council decisions in favour of zoning for business rather than housing, here councils get the costs of new development offset by rates revenue while central government gets the bulk of the benefit of growth. 

And does this sound like the RMA?

Streamline Environmental Reviews.  Some states require all new development to go through an extensive and costly environmental review process.  This process can easily be manipulated by neighbors to fight development they dislike for reasons having little to do with environmental protection. The California Environmental  Quality Act (CEQA), for example, has become a preferred tool of homeowners looking to squash new development, as they can force developers to spend additional time and money on environmental reports. Previous efforts to streamline CEQA in order to lower the cost of housing have failed due to opposition from environmental groups, and it is notable that amid the flurry of housing bills passed by the California legislature in 2017, not a single one touched the CEQA process.

The article doesn't explain why California's such a mess while Houston and Atlanta aren't. Better mechanisms for financing urban expansion is part of the answer.  

Food fights

Hoisted from the comments, here's Donald Ellis's take on NZ's food safety regime.

This is a slightly nuanced situation. The newspaper report seems to say that one part of the DHB shut down the operation of another part of the DHB and are using the new legislation as a reason. To be honest there is nothing new about caution over freezing food and re-heating it for later service. So I read it as the DHB auditing all of their food handling practices (spurred on by the change in legislation) and finding a practice they would have been unhappy with at any time had they known about it.

Although the new Food Act is largely a re-packaging of the old Food Act there are two relevant new inclusions in the legislation. The first is a specific reference to applying appropriate standards to food prepared for "vulnerable populations". This provision clearly applies here. The second is the duty of regulatory authorities to "... promote standards and control mechanisms that are, as far as practicable, risk-based and science-based...".

The new Act was sold to the industry as liberating because compliance requirements would now reflect the actual risk of each operation. Market stallholders would be allowed to prepare food in their home kitchen. We could do away with the nasty old "one-size fits all" regulations. Unfortunately the likely outcome will most likely be the complete opposite. From what I have seen so far a multitude of standards promulgated by Foodsafety NZ will simply be enforced on everyone with no reference to actual risk (let alone science).

This story in Tokoroa is just the beginning of a general shutting down of the food industry rather than a liberation.

In defence of flogging, revisited.

I'm a fan of Moskos's essay on flogging.

It looks like Zach Wienersmith is too. Hit the link for proper viewing. And for the red button.

Costly discrimination

Danish kids are happy to pay to avoid having to work with someone of a different ethnicity. In this clever field experiment, Danish kids with traditionally Danish-sounding names were willing to forego expected earnings in order to avoid being paired with someone with a Muslim-sounding name - and vice-versa. 

It's a great experimental design. Kids do a first round stuffing envelopes on their own, paid a piece rate. For the second round, they have to choose a day to come in, and they'll be partnered with another kid with a joint payoff for how much the team gets done. They're given information on what the other kid achieved in the first round. Because the framing is choice of day to come in for the task rather than choice of partner (though the day determines the partner), there's less chance that the participants would expect the experimenter to be inferring racial preference. 

Team productivity in this task depends on the productivity of each of the workers in the prior round - there's no diversity benefit or penalty. Of course it's just envelope stuffing.

Preference-based discrimination is symmetric. Participants with Danish-sounding names were willing to pay to avoid being partnered with participants with Muslim-sounding names, and vice-versa. 

The insignificant estimate on Danish-sounding indicates that the tendency to discriminate is not different across ethnic types, after controlling for differences in prices. We think that this is a remarkable result for two reasons. First, attention both in the literature and policy debates usually focuses on discrimination of the minority group by the majority group because members of the majority group are more often in the position to discriminate, and workers from the minority group tend to be disadvantaged. However, our results suggest that observing more frequent discrimination of minorities may simply be due to the fact that majority decision makers have more opportunities to discriminate rather than a stronger ethnic animus.

This too was interesting:

Second, this result highlights the importance of controlling for prices when measuring discrimination. From simply looking at discrimination percentages, a layperson may be misled to conclude that decision makers with Danish-sounding names are more likely to discriminate. In fact, decision makers with Danish-sounding names discriminate in 44 percent of the cases, while those with Muslim-sounding names do so in only 33 percent of the cases (however, p = 0.517, χ2 test). Yet, these differences do not reflect differences in animus because decision makers with Danish-sounding names face a lower price on average than decision makers with Muslim-sounding names (€5.2 versus €7.8, p = 0.078, KS). The reason is that workers with Danish-sounding names are systematically more productive (116 letters) in round 1 than participants with Muslim-sounding names (100 letters). According to regressions (2) and (4) in Table 3, these price differences explain the observed differences in taste-based discrimination across ethnic types (Danish-sounding is insignificant, but Price is significant).

They conclude:

Using a sample from Denmark, we find that discrimination is common even at a substantial price, that majority and minority groups are equally likely to discriminate for given prices, and that the demand for discrimination is highly elastic. Our best estimate is that the probability to discriminate falls by about 9 percent if the price of discrimination goes up by 10 percent.

Denmark may be more polarised than other places; would be very interesting to see this repeated elsewhere.

There are a host of interesting implications for policy, which the cautious blogger leaves as exercise for the reader. The elasticity of immigration restrictions with respect to the stringency of workplace diversity mandates or the legal status of repugnant homeowner covenants is one fun one to think about. Second best policy in a world of crooked timber....

Oh: Jean-Robert Tyran is one of the paper's authors. He also wrote my most favourite ever experimental economics paper.