Wednesday, July 23, 2014

Coroner Recommends ... revisited

Kiwiblog reports on an Otago study looking at uptake of coronial recommendations. It's gated at the NZMJ, but Stuff and the Herald have coverage.

Jennifer Moore went through all the coronial recommendations from mid-2007 through mid-2012: 1644 of them. She makes a few reasonable recommendations about things the Coroner's Office could do to increase uptake of their recommendations: vaguely directed recommendations are unlikely to hit anybody's radar.

But she doesn't note one potentially important reason that at least some coronial recommendations don't lead to policy changes. The Coroners Act 2006 asks coroners to make recommendations of any changes that could reduce the likelihood of future similar deaths, but with no reference to any kind of cost constraint. So while the coroners will put out lots of really helpful and cost-effective recommendations, they'll also recommend things that seem extraordinarily unlikely to pass any kind of reasonable cost-benefit assessment. Mandatory high-visibility clothing (not just vests) for cyclists, mandatory helmets for riders of motorised skateboards, and mandatory fencing-off of farmhouses seem reasonable on a "if it saves only one life it's worth it" standard, but fortunately policy isn't based on that kind of standard. It's then hardly surprising that not all coronial recommendations turn into policy changes.

As I'd noted last year:
The problem seems to be in the Act. Pretty much anything that could reduce the chances of particular forms of death can be recommended; there's no consideration anywhere of costs. It's fine to say that that's Parliament's job. But Coronial recommendations carry some weight - people take them as being something more than "This is something that could save lives, but I have no clue whether it's worth it because I have zero training in policy assessment and cost-benefit analysis, so somebody else better figure out whether we'd be wasting a whole ton of resources in enacting it; moreover, the Act specifically asks me to just name any darned thing that might help even if it would cost a trillion dollars and save a life every fifty years."
It would be interesting to go back through Moore's list to see whether some rough ballparking of cost-benefit ratios predict which coronial recommendations are taken up.

Monday, July 21, 2014

Internet Party Policies

NZ's Internet-Mana Party announced a few policies this weekend. I wish they'd stuck to internet and surveillance issues. Here goes.
Internet Party leader Laila Harre said it would stop the controversial Trans-Pacific Partnership trade agreement, give students free tertiary education and instigate a royal commission on any spying on New Zealand residents by the Government Communications and Security Bureau (GCSB).
Let's take these in turn.
  • I'm a bit of a TPP-sceptic, but I'd sure not want to stop it until the final text had been hammered out. There's some chance yet that it could be well worth having. We just have to be ready to turn it down if it isn't. Getting better dairy access to the US would be great, but so too would avoiding having US copyright laws imposed on us. Until we see the deal, we won't know what the trade-offs are.
  • Free tertiary education seems a rather poor idea. After Labour put in interest-free student loans, a whole pile of other sectoral distortions followed. Why? Because every additional admitted domestic student meant a potentially substantial liability for the Crown. And so we started getting different funding arrangements with capped student intake. Either this policy would be extraordinarily expensive, or it would wind up reducing the number of places at Uni, or it would require substantial per-student cost-cutting at the Universities. 
  • I could be sympathetic to the last bit, but I'm not sure what the point would be. We kinda know what they did, and the government has made it all legal. We don't need a Royal Commission. We need a redrafting of the legislation with input from the tech sector at ground level. [Update: Chris Yong, Internet Party candidate for Te Atatu, notes that the Commission enquiry would be into the handling of the DotCom case; the total review of the GCSB Act would be separate.]
Back to their policies:
Mana Party Waiariki candidate Annette Sykes said it would close prisons, while co-vice president John Minto promised to abolish GST but introduce a tax on financial speculation, and bring back the inheritance tax ditched by National.
  • I'd really want to see what policies they're proposing to reduce the prison muster before commenting on closing prisons. If they can do it by legalising possession, cultivation and distribution of marijuana while releasing anybody jailed for only those offences, and if that were enough to do away with a prison, great. 
  • Replacing GST with a speculation tax is an extraordinarily bad idea. The GST is a nice clean tax. Financial speculation taxes are rather harder to implement and, worse, don't make a lot of sense. The best case for them is that they might reduce excess volatility in currency markets, but that doesn't apply well to the kinds of long term cycles we get in the NZ dollar. 
  • Inheritance taxes aren't uncommon around the world, but they do involve substantially more distortion than does the GST. Whenever you put in inheritance taxes, you have to put in a big apparatus around transfers from parents to children to avoid folks' just pre-gifting the inheritance. But when you do that, you also encumber a lot of ways that parents are already helping their children for non-tax-avoidance reasons. If an inheritance tax kicks in at $500,000, that will hit a pretty decent fraction of estates where the deceased owned a home. Do you then require that the grieving kids sell off the family home to pay the taxes? Or do you exempt the family home, and consequently induce even greater investment in housing? It's messy.

Saturday, July 19, 2014

Testing bans

How far back should any ban on animal-tested products go?

Labour this week promised that, in the unlikely event of its election, it will ban the importation of overseas cosmetics that had been tested on animals. Suppose you agree with the intention of the policy: to reduce and eventually eliminate the testing of cosmetics on animals. Deciding which cosmetics to ban remains tricky.

At minimum, you would want to ban the importing of any products whose development involved animal testing where that testing happened after the ban went into force. We can only really ever affect behaviour in the future, not behaviour in the past, so banning future products that had been tested on animals would be the obvious start.

Suppose you went further back and decided to ban anything that involved testing since Wednesday, when Labour's policy was announced. Perhaps some manufacturers would have heard that this policy could eventuate in New Zealand and might decide to change their development process as consequence. You'd want to have been clear that the ban would apply from today-developed products onwards, but you can still make the case for it.

Going farther back, you start conferring rents on manufacturers who had chosen to veer away from animal testing and to impose losses on those who hadn't. It's possible that these rents could fuel further product development from the no-testing companies, and maybe it's desirable to confer those rents even if it doesn't. But the farther back you go, the more losses you impose on NZ consumers for no plausible gain for today's animals. If it turned out that Chanel #5 involved some kind of animal cruelty when developed in 1920, what possible benefit would come of a ban?

I don't know what the right answer here would be from the perspective of someone against hurting animals, but it seems unlikely that any ban should extend backwards in time all that far. I am curious how Labour would seek to apply this though. Their PDF says any products or ingredients that have been tested on animals would be banned. But it doesn't say anything about whether that applies only to current testing, or to past testing.

Friday, July 18, 2014

Zone wars

Adrien de Croy, who lives with his family in a home zoned for EGGS and also within the proposed One Tree Hill College zone, understood there was significant pressure on the rolls at AGS and EGGS.
"They can't really reduce the zones unless there's an alternative in place, and [the proposed One Tree Hill College zone] basically gives them the opportunity to reduce their zone. We see it as the first step to removing us from the Auckland Grammar and EGGS zones."
Mr de Croy, whose eldest child is 7, said at this stage his main concern was for the value of their property. A real estate agent had told him a typical premium someone would pay to get into the "double Grammar zone" was about 20 per cent.
Last year the Herald reported one Mt Eden home just 750m outside the area went for $516,000 less than a house up the road, valued the same but situated 250m within the zone.
One Tree Hill College principal Nick Coughlan said he understood such concerns, but they were unfounded.
The zone, and any overlaps, was informed by the need to not divide areas and homes around contributing schools. There was no intention to realign zones in the future, Mr Coughlan said.
We can do better than this, though, to gauge the effects of school zoning. For that, we turn to Waikato's John Gibson and Geua Boe-Gibson. They've estimated the effects of school boundaries in Christchurch pre-quake. From their abstract:
School attendance boundaries are a contentious issue in New Zealand, and have been relaxed and re-imposed depending upon political sentiment. Critics contend that a supposedly egalitarian state school system becomes one of selection by mortgage, with the value of ‘free’ schools capitalized into property prices. Attendance boundaries restrict the schooling opportunity set facing a student, who typically is unable to study at nearby high-performing schools if they live outside their boundary. We relate schooling opportunity sets to sales prices of over 8000 houses in Christchurch, controlling for dwelling attributes, neighborhood characteristics and geographic accessibility to a wide range of services. Our model explains over three-quarters of the variation in prices and we use this model to predict property prices if there were no attendance boundaries. Abolishing boundaries expands most schooling opportunity sets and predicted house prices generally rise. But prices would fall in some higher income neighborhoods with highly educated residents, who are likely to oppose reform of school attendance boundaries.
Gibson and Boe-Gibson use a year's worth of house sales in Christchurch, October '04 through October '05, to check the effects of school zones on prices after accounting for land and building area, building age, materials, parking, garage, and whether there was a deck, slope, or view. I hadn't known that QV data included information on the latter three. Importantly, they link in Census meshblock data on neighbourhood ethnicity, immigrant status, education, and employment, and meshblock crime. Some of the work on school zone effects will confound "good school"  with "seen-as-desirable (ie no rednecks) neighbours".

They simulate the effects of a standard deviation increase in NCEA Level 1-3 pass rates on median house prices and find that, all else equal, having access to a school with a standard deviation better NCEA pass rate is worth between $14,300 and $19,900 for the median house. This gives a few implications.

First, the market value of policy innovations that improve school quality is very high: a policy that improved NCEA pass rates by a standard deviation is worth about $42 billion.

Second, locking poorer people into poorer schools seems a pretty bad policy. Gibson calls it "selection by mortgage", and worries it can reduce social mobility especially among minority groups.

Finally, while abolishing school zones would increase the total value of the housing stock because gains to those getting access to better schools exceed losses to those currently sitting on regulatory rents, it's unlikely to happen because those earning the rents are more effective at protecting turf. While the average goes up in value by about $25,000, houses in preferred zones drop in value by about $20,000. I expect this is an upper-bound estimate as other forms of rationing would have to come in for the better schools in the absence of mechanisms allowing them to grow, and as I'd expect that those with current access would find ways to maintain such access.

Rich people can afford to pick their preferred public schools; poor people get locked into whichever schools service poorer neighbourhoods. The problem is worse in much of North America, where schools are funded from local property taxes rather than from general revenues, ensuring that poor places can't afford good schools; New Zealand's decile funding system works to provide equitable funding across schools. But zoning still causes problems.

Gibson and Boe-Gibson conclude:
...the property market becomes the main schooling selection mechanism for New Zealand parents who are ambitious for their children. Even though schools may nominally be ‘free’, students from poorer households face more restricted schooling opportunities than do wealthier students, being constrained through the housing market.
Almost two decades have passed since New Zealand’s brief experiment with relaxing school attendance boundaries in the 1990s. The frequency of reselling houses makes it likely that most home-owners have paid a price for their dwelling that includes the expected value of access (or exclusion) from particular schools. Consequently there will be windfall gains and losses if future policy reform allows a weakening of attendance boundaries and an opening up of school enrolments. Nevertheless, the wide variation in school performance and the contribution of attendance boundaries to reducing social mobility suggests even difficult reform is worthwhile.
I would love to see a replication of this work in Wellington. In particular, I'd love to know the relative magnitudes of school zone and all-source earthquake risk on property values. Is there a bigger difference between moving from Wellington College zone to out-of-zone than from moving from a low-medium quake-risk property to one that will fall off the side of a cliff in an earthquake? I suspect so, but it would be nice to know.

An Uber experiment

Reason asks an excellent question: is Uber helping to cut drink driving rates in the US? When it's cheaper and easier to get a cab, maybe more people will do it instead of chancing a drive home when they shouldn't.

Reason points to some preliminary work on the topic done by Uber, looking at Uber's entry into Seattle with San Francisco as control. The work's suggestive, but hardly conclusive - especially when there are dozens of cities that could have been chosen as treatment or control.

So, here's the Masters thesis for somebody. Get a city-level panel of DUI rates and of taxi fares. As a first step, just run fixed effects with Uber entry and exit dates. Then run a few more complicated versions, like matching cities by probability of Uber entry based on city characteristics and taxi fares (comparing those of similar ex ante probabilities with different ex post resolution). Or exploit the city-by-city variation in pre- and post-Uber prices. There's loads of potential here, if city panel data on DUI arrests is available. There's loads of wonderful not-related-to-DUI variation in whether cities allow Uber or not making for something close to a natural experiment, though that will be less true if Uber's started using DUI-effects in its lobbying.

In other news, I had my first ride in an Uber cab in Auckland a couple of weeks ago. The cabbie was very enthusiastic about telling me all about it: he's on an hourly rate, but flips to commission when it's busy enough (says he gets 80% of the take). It makes sense that Uber would put cabbies in new markets on hourly to make sure that there's enough supply there when new customers come in.

If you sign up with Uber on code ericc294, you get $10 off your first ride and I get $10 in credit too.

Thursday, July 17, 2014

Convention Centre Madness

Convention Centre Economics is about as bad as Stadium Economics. It just gets less airtime because people are more interested in sports.

The best you can usually hope for is that there might be some private matching funding and that the site is developed so that it isn't an urban deadzone whenever a convention isn't on. If you can manage to get a private sector outfit willing to fund it, it's usually because of sidepayments on other margins, like casino concessions.

So what happens when a private firm really seems willing to put up its own money to build a convention centre? City Council still wants to run its own one using taxpayer money, because the private one might not be big enough to attract really large international conventions and, because it's not right where Council would want it, might not provide as many spillover benefits.

Chris Hutching over at NBR (gated) has the story.* Alastair Porter wants to open a convention centre near the Queenstown airport, called "Remarkables Park". He wants to target smaller Australasian conventions, noting the pretty saturated market for the big international ones. He's lodged the consents to get started. Queenstown Council wishes instead to have a bigger venue downtown to anchor a retail, hotel and entertainment district.

Queenstown accountant Duncan Fea is quoted in support of the Council proposal, saying simultaneously that it will hurt the central business district because of the airport location and that, because it's at the airport, there will be logistical difficulties in getting attendees to and from downtown hotels. I'd have thought that conventioneers staying downtown and catching a shuttle would have given downtown Queenstown the best of both worlds: a centre they don't have to pay for, evening traffic from conventioneers, and no big deadspot downtown when there isn't a convention on.

I'd also have thought that Queenstown would have been a tough venue for big international conventions anyway because anybody going there needs to connect from Brisbane, Sydney, Melbourne, Christchurch, Wellington or Auckland. It's a beautiful spot, but it's a hop away only from places that already have, or are planning to have, ridiculously big convention facilities for international conferences.

I can't get how anybody's calculations would lead them to conclude you get higher net benefits for a downtown convention centre that you have to pay for than from one near the airport, whose visitors stay downtown anyway,** and that, critically, you don't have to pay for.

Does Queenstown really want to *punch* a gift-horse in the mouth?

Update: If it's really the case that everything would be so much the awesomer for downtown businesses with a downtown convention centre, Duncan Fea should start a PledgeMe drive among local businesses to fund it. If it's as great as he's claiming, they'll all be really keen to do it.

* You really should subscribe to get the whole story, and their other great coverage.

** And, even if the site did put up hotels, who the heck wouldn't spend some tourist-time in Queenstown while there?

The Price of Food

Imagine that, every winter, you heard stories on the radio about the terrible terrible food price increases and how they were hurting poor families. And suppose you never heard stories in the summertime about the just-as-regular price drops. What would you think about the long-term price of food?

Radio NZ called me yesterday asking if I'd come on Morning Report to talk about the latest inflation figures and the price of food. Here's the notes I'd made for myself, some of which I used.
Headline year on year CPI growth is 1.6%, a bit below the middle of RBNZ’s target band of 1-3%. Again, inflation in tradeables was far lower than inflation in non-traded goods: for much of the past decade, inflation in traded goods has helped pull down overall inflation rates. June quarter  inflation in tradeables was 0.1%; non-tradeables, 2.7%. Food is up 1.6% on last year, in line with overall inflation rates.
Inflation in food prices attracts a lot of attention because it’s easy to tell stories about people who are hurt when food prices go up. Quarterly food price inflation was 0.9%, up on last quarter because it’s winter now, and 1.6% on the year, because we had a bigger increase earlier in the year that means we’re higher than the same time last year. But we don’t hear as much about the seasonal price drops in summertime. The December 2011 summertime price drop and December 2012’s were together enough to make year-on-year food price inflation negative for three consecutive quarters. And I just don’t get why a 0.9% quarterly food price increase, like this quarter’s, draws that much more agonizing than December 2011’s 2.2% quarterly food price drop, or December 2012’s 1.8% drop, or December 2013’s 1.3% drop.
If you take the broader picture and compare food price inflation to other stuff, it’s not out of whack. Say you had a dollar in June 2006. It would take $1.20 to buy the same total bundle of goods today as then, but $1.29 to buy the same bundle of food. It would take $1.32 to buy as much housing and household utilities now as you could have bought for $1 in June 2006. You can get the June 2006 bundle of transportation services for $1.17. Petrol? $1.26. If we bundle together all the goods that aren’t traded, you’d need $1.29. For traded goods, you’d need $1.08. Food cost inflation over the longer period is higher than inflation in other traded goods, but shipping costs per unit value are going to be higher for food coming in from overseas than for televisions, and the rest of it’s domestic.
Continuing with 2006 as a base year, the minimum wage was then $10.25. It’s now $14.25. So a dollar’s worth of minimum wage in 2006 is now $1.39: hikes in the minimum wage have at least kept up with inflation.  If we look at average weekly earnings over the same period from the quarterly earnings and employment survey, $1 in weekly earnings in 2006 turned into $1.32 in 2014.
The CTU's Bill Rosenberg didn't like my use of 2006 as base year because he reckons wages haven't done as good a job of keeping up with inflation in more recent years. I'd picked 2006 only because that makes things easy in the RBNZ series: they use 2006 as base year in the recent inflation figures. But, for Bill's benefit, here's the full series, using 2009Q4 as baseline. Why that quarter? Because the wage index actually dropped in March 2010, and he referred to low wage growth over the last 4-5 years. I don't have June 2014 inflation in there because we don't yet have June 2014 wages.

I'm here using the RBNZ's M1 Prices series on CPI and food, and the StatsNZ Earnings and Employment Survey's Average Weekly Earnings series QEX043AA. What's happened to average weekly earnings compared to either CPI and food over the past four years? Compare blue to red and green. It would be better to use median earnings, but that'll be in the annual income statistics which haven't come out for 2014 yet. If I'm picking the wrong series for purpose, I'll defer to whatever Matt Nolan tells me should have been preferable.

Radio NZ referred to me as "The New Zealand Initiative's Eric Crampton" and referred to NZI as successor to the Business RoundTable. Two mild corrections.

First, I don't start officially with NZI until I get myself organised to get to Wellington. My last day with Canterbury as Senior Lecturer in Economics was Monday. Tuesday was my first day as Adjunct Senior Fellow with the Department of Economics & Finance. That unpaid affiliation will continue when I move over to NZI and will let me continue to help out with some supervisory work; I also hope that Econ interns from Canterbury will be able to help us out on a few projects once I'm settled.

Second, NZI is successor to both the NZ Business Roundtable and the New Zealand Institute. The two bodies merged after Roger Kerr's death, with Oliver Hartwich coming in to head things up.