Steve-I-Am that Steve-I-Am

File this one under "The Culture that is New Zealand".

For the last eight years, Stephen Hickson, my colleague at Canterbury and all-round decent Kiwi, has played Steve-I-Am to this grouchy non-Marmite-eating Canadian.

And for years I told him I would not could not on some toast, I would not could not with some roast, and so on and so forth.

But he finally brought me around with "Would you, could you, with some cheese?" I've been an occasional Marmite eater for the last few months; Susan remains less than a fan.

And now we're running out of Marmite. Twitter is full of #marmitesongs and the #marmitecrisis.

Remember the old Cheers episode where Fraser hypnotised Woody into liking Vegge-Boy and then Vegge-Boy was cancelled? Yeah, that. I blame you, Steve-I-Am. I wouldn't have cared if you hadn't brainwashed me.

I endorsed price gouging as best way of allocating scarce remaining supplies (of course I would; predictable). Keith Ng worried about social cohesion in the face of the crisis. I suggested running a randomized control trial where we allow Marmite price gouging in some cities but rationing in others; Ng invoked Duhem:

@EricCrampton Sure, but if I lose, it just means there are too many uncontrollable variables for empirical observations to be valid.
— keith_ng (@keith_ng) March 19, 2012

And iPredict is running a contract on whether Marmite will be rationed at any of the major supermarkets. The NBR's watching the contract, perhaps fearing the economic costs of the social unrest that might come with a full Marmite apocalypse.

Stephen said at lunch that he now plans on stocking up on his way home. It's folks like him,* who profess a public spirit but will hoard in the face of crisis, that make the case for price gouging all the stronger.

Oh, and at least one person on Twitter has issued threats against those who would suggest Vegemite as acceptable substitute.

* Stephen's really a good guy; if he weren't, I'd not here tease him. I only bear him a pretend-grudge because I enjoy faux-outrage.

Prison economic illiteracy

There are good arguments against privatizing prisons. Labour's Charles Chauvel doesn't use them here:

Labour's justice spokesman Charles Chauvel said Wiri was expected to cost the taxpayer about $1 billion over 25 years but its "indirect" costs were becoming clear and were "disturbing".

"National seems to have made a decision that, rather than refurbish many regional state-owned institutions, it will simply close them. Prison closures will be a big blow to regional economies. Job losses will be significant."

The proposal made "little economic or social sense".

The National-led Government should invest the $1 billion in improving existing state assets instead of boosting the bottom line of a private company, he said.

 A few of the problems:

• Prison guard jobs are a cost, not a benefit; if we could guard them for free, that would be better.
• Closing old prisons and opening a newer one will mostly mean job transfers, not job losses. 
• Viewing prisons as an economic development initiative is a quick route to bad outcomes; imprisonment becomes a good rather than a bad.

While Shleifer raised some really good points against prison privatization, those are mostly arguments about making really sure to get the incentive contracts right. Private prisons can too easily chisel on margins that reduce costs but brutalize prisoners and increase re-offending. But that doesn't seem to be the case here. 

The private manager of the prison facilities is subject to a re-offending target, according to the Press article:

Serco is expected reduce reoffending by more than 10 per cent and will face financial penalties if it fails to meet the target. 

And, Serco is the company that manages Mt Eden prison, where they found it cheaper to treat prisoners kindly and thereby save on guard costs. 

I have no view on whether total costs are reduced by closing the old prisons and building a new one; I've not looked at the numbers. But Labour's not making a particularly good case against the move.

Light Rail - cautionary tales

I'd reckoned that if Christchurch City Council spent $400 million on a light rail line connecting campus to downtown, they'd need 10,000 people riding that line every day at $10 per person to cover just the capital costs if we use Treasury's recommended 8% discount rate on infrastructure expenditures; if Council's able to fund it somehow at 4%, you need 7,000 daily riders at $10 each to cover the infrastructure cost. The RedBus network carries 5.8 million passengers per year, or 16,000 per day. The draft plan suggested this route as the starting point for a larger rail system.

The December update to Council's planning documents says they'll be examining the feasibility of the  larger network. See page 110 here.

At a broadly estimated system construction and rolling stock purchase cost of around $1.5 to $1.8 billion at today’s prices (excluding ongoing operating and maintenance costs) for a staged, comprehensive city-wide network of five key routes linked to and through the Central City, a decision to initiate this project will be fundamental for the Council and equally importantly for Greater Christchurch.

Today's cautionary tale comes from Norfolk, Virginia.  They've a population of just under 250,000 for the city proper, but a total metro population of 1.6 million if we count the greater Hampton Roads area.

They put in a 7.4 mile starter light rail line for $320 million, or about NZ$400m - roughly comparable to what Council here wanted to spend on a slightly shorter line between downtown and the University. Norfolk's line, The Tide, has now been running for 6 months. They're getting an average of 4,642 riders on weekdays; they're forecasting it'll hit 7,200 daily riders within three years. They're claiming success against expectations of 2900 daily riders, but AntiPlanner puts paid to those claims; the initial projections said they'd get 10,400 riders on weekdays. And they're only charging $1.50 per adult trip. [HT: 36chambers]

Norfolk's Tide system connects a big medical centre complex, an art museum, the entertainment and commercial district, the courts, baseball stadium, Norfolk State University, and a couple of stations with park and ride facilities for mixed commuters in a metro region of 1.6 million people. It's a line roughly comparable to the Downtown to University line Council initially proposed as the start of a light rail network for Christchurch, but in a metro region that's more than four times bigger than Christchurch. And it's only forecast in three years' time to start getting the kinds of daily ridership numbers that might have a Christchurch line covering its capital costs (ignoring operating and maintenance costs).

Here's AntiPlanner on Norfolk:

Needless to say, the Norfolk line also suffered a huge cost overrun, costing about $320 million instead of the $198 million that had been predicted in 2003. It was supposed to open in 2008; instead, it opened in 2011. These problems cost the transit agency head, Norfolk city manager, and several other officials their jobs.

So it is no surprise that the current transit agency head wants people to think the light-rail line is a success. Thanks to credulous reporters whose idea of investigative journalism is to reprint transit agency press releases, many members of the public will soon forget about these cost overruns and ridership shortfalls. But it is interesting to compare the Norfolk numbers with Houston, which also has a 7.4-mile light-rail line. Only Houston’s carried more than 35,000 riders a weekday in 2010, or more than seven times the ridership of the Norfolk line. In its first year of operation, Houston’s carried more than 34,000 riders per weekday.

Or compare Norfolk with the Buffalo light rail, which is almost synonymous with “failure” partly because Buffalo’s total transit ridership–bus and light-rail together–declined from 36 million trips per year just before the light rail opened to 26 million trips per year by 2001, and ridership has hovered around that number ever since. Although it is only 6.2-miles long, the Buffalo line carried 21,500 riders per weekday in 2010, well over four times as many as Norfolk’s.

The real question is: if Hampton Roads Transit ever really thought that its light-rail line would only carry 2,900 riders per weekday in its opening year, why did they build it? 

And recall that where Norfolk's in a metro area of 1.6 million, Houston is 2.1 million for the city proper and a metro region of close to 6 million. Buffalo's greater metro population is also over a million.

I'd be putting money on a Christchurch light rail system being a worse debacle than the Dunedin stadium, but I hope I'm wrong.

Dunedin aftermath

Given that Dunedin chose to burden itself with a ridiculous stadium investment, it then became optimal for Dunedin Council to bail out the local rugby team - it cost less than Council would have lost in rental revenues from the stadium if the Otago Rugby Union went bankrupt.

Here's Dunedin Mayor Dave Cull (who was on Council but wasn't mayor when Council decided to build the stadium; he had voted against the stadium):

The ORFU was bailed out because "the financial model around the so-called private sector funding component of building the stadium is dependent on revenues from the games that professional rugby play there.

"I'd have to say, before it was being built and right up until now, that was the most imprudent, risk-laden way of financing anything. It was basically pretty stupid, but we've got it, and we have to find a way of maintaining the revenue stream for that, or it falls back on the ratepayer. This deal has avoided that,'' he told Radio Sport.

The NZ Rugby Union had previously said the new stadium would be key for the Otago team's viability; I doubt they expected it to be key in ensuring a Council (and NZRU) bailout.

Meanwhile, there's an investigation into what the stadium actually did cost the city.

Previously...

Assets and Default

If I owned a bunch of property and were going into default on some debts, the guys to whom I owed money might ask me whether I ought to consider selling some of those properties to pay my bills. And, if my kids were starving because of the austerity I'd otherwise had to impose on the family budget to keep the bondholders at bay, why wouldn't I consider a bit of asset divestiture?

Greece has somewhere around 6000 islands in one of the most beautiful parts of the world. Islands of legends and Greek Gods and stuff. Islands that, you'd expect, would be worth something to somebody. Some of them are privately owned and do trade. Here's one place you can go to buy one.

But all those islands are encumbered with Greek sovereignty. Own the island, own the  entanglements of the Greek state that make development, well, hard.

First of all, to date it is rather hard for someone to develop a private island because of the Greek state bureaucracy and the domestic Archeological Agency, which is stringent in its examination of every case that involves an island that may have antiquities of any kind lurking under its soil. 

And that's just for setting up the island as a holiday home. If you have to provide a stool sample to get through the regs letting you set up a web-based business, a Greek Island isn't going to be your first pick for doing anything innovative.

Imagine being able to bid on an island in the middle of the Mediterranean within a short flight of Europe, the mid-East, and northern Africa where Greece wouldn't just hand you title, they'd hand you sovereignty? There has to be a ton of value locked up in those islands that could be released by Greece being willing to relinquish sovereignty. Restrict it to the uninhabited islands to keep things simple, for starters.

Seasteading is cool. But imagine kickstarting it by letting a thousand sovereign islands bloom in the Aegean Sea? Keep the Americans happy by barring sale to anybody currently on terrorist watch lists.

There has to be some good reason that Greek bondholders haven't asked for sovereign ownership of Greek islands in exchange for debt writedown; the potential asset value just sitting there seems pretty obvious. Devilled if I know what's preventing it though. Surely most Greek citizens would prefer losing half their islands to the mess they're currently in. On the bondholder side - Bond debt, that's just money. Your own country in the Aegean? Priceless.

Potential obstacles:

• Nobody trusts the Greeks not to renege by reasserting sovereignty somewhere down the line; most other countries would probably back them against sovereign individual property owners too.
• Germans are reluctant to look at anything that seems territorial expansion.
• The Americans might not let them.
• The EU might not let them.

Does anybody know what the binding constraint is? 

Obesity and Impulsivity

Blaming the victim, perhaps. But a new paper suggests personality traits correlate strongly with obesity outcomes. [HT: @bakadesuyo] They find very strong correlations between neuroticism and obesity, and between low conscientiousness and obesity, concluding:

Obesity is a major public health crisis that has multiple antecedents. Certainly many factors, other than psychological, have contributed to the recent societal increase in weight. Yet, even after controlling for major demographic and genetic risk factors, personality traits remain significant predictors of adiposity (Chapman et al., 2009; Terracciano et al., 2009). In fact, personality has an effect on BMI that is of similar or greater magnitude than that of socioeconomic status (Chapman et al., 2009) or the FTO-variant (Terracciano et al., 2009). The cognitive, emotional, and behavioral patterns associated with personality traits likely contribute to unhealthy weight and difficulties with weight management. Identifying the personality traits associated with obesity may help to elucidate the role of personality traits in disease progression.

My first worry is that being obese may generate measures of neuroticism (anger, for starters); fatalism consequent to poor obesity outcomes also could generate low conscientiousness. In other words, it's then hard to exclude reverse causation. But, they also run a few tests on whether personality traits predict weight gain, finding:

In the HLM analyses, the emotional aspects of impulsivity—N5: Impulsiveness and E5: Excitement-Seeking—were consistently associated with greater weight gain over time across the four measures of adiposity. Such individuals give in to temptation and seek out highly stimulating environments; food and alcohol may be one form of stimulation. And, in fact, sensation seeking has been linked with binge drinking (McAdams & Donnellan, 2009) and overeating (Davis et al., 2007). Such behavior may, over time, contribute to weight gain.

I worry that nudge or harder paternalistic measures targeting specific outcomes like obesity, or drinking, or whatever manifestation of high impulsivity/low conscientiousness you want to get angry about, wind up having perverse consequence by effectively subsidizing failure to invest in the general purpose personal technology of impulsivity control and conscientiousness.

Want to fight obesity and other bad stuff in the longer term? Come up with a good way of training kids in conscientiousness and impulse control.

An interesting counterfactual

Start by thinking about the US movie industry. Now take away copyright protection - the government gives up on trying to police it. Next, get rid of most of the country's movie theatres so that the one place where the industry can most securely monetize content is gone. Next, cut per capita income to about $1000. And, get rid of most of the infrastructure that's complementary to the film industry. Finally, make sure that there's no government support of the industry to make up for all the other problems.

There'd be no movie industry at all, right?

Except Nigeria's already there and producing more films per capita than the average for developed countries. Olufunmilayo Arewa documents Nollywood's success.

The rise of the film sector in Nigeria runs counter to existing trends in the film sector in which developing countries, which produce 1.2 films per million inhabitant annually, lag developed countries, which produce 6.3 films per million inhabitants annually.¹⁷³ At current Nollywood production levels, Nigeria produces approximately 6.7 films per million inhabitants annually.¹⁷⁴ Bridging the developing country film production gap remains challenging, particularly because the optimal ways to create domestic film industries remain elusive in many instances. Prior to the proliferation of Nollywood films, at least one commentator suggested that government takeover of the film industry would be the only means by which Nigeria could develop a film industry.¹⁷⁵ 

Notably, although many countries have sought to incentivize particular types of film production through direct government funding, subsidies, or film protection schemas involving film quotas,¹⁷⁶ many of these industries have not been commercially viable in the absence of subsidies or other support schemes. In contrast, Nollywood has created significant volume of local video film content with virtually no government involvement or subsidies. The success of Nollywood may in many respects be attributable to a lack of government involvement and its decentralized nature, which has permitted Nollywood participants to be highly entrepreneurial, adaptive and innovative. Nollywood now may employ as many as 200,000 people directly with estimates of indirect employment as high as 1 million.¹⁷⁷ The market-driven Nollywood approach is less costly than existing models of film production and distribution and may offer a new model for developing countries that wish to develop domestic film industries. [emphasis added; number does seem high, Nigeria population about 158 million...]

Arewa says Nollywood succeeded, in part, because very lax copyright enforcement meant Nollywood films enjoyed early broad distribution, building demand for later works. Now that the brand has been established, more secure property rights could be useful. And, copyright enforcement has stepped up a bit; Arewa quotes the following:

Industry officials and government agencies have started paying closer attention to piracy, but so far there hasn’t been much of an effect. A recent police raid on a well-known DVD-copying operation resulted in a brief confrontation between police and piracy-ring leaders. The pirates stood their ground and burned a police truck, then went back to work making knock-off Nollywood copies. The only repercussion for the offenders? A bill for the damage to the police vehicle.²¹²

Films are low-budget, usually financed by friends and family, and distributed on DVD through informal networks. They don't earn much, and even with copyright, vendors couldn't charge more than the $2-4 they charge per disc: consumers couldn't afford it. But better protection would now yield higher returns through increased legitimate distribution.

Arewa sensibly suggests a few potential channels, like capitalizing on pirate distribution networks through in-film product placement and advertisement, where other alternatives like moving from informal to formal business environments and strengthening intellectual property protection might not be feasible. The lessons probably apply more broadly.

Update: Cowen previously pointed to more on Nollywood and online distribution of Nollywood films: Nollywood plus Netflix = profit.