Friday, 22 May 2015

Coasean biosecurity externalities

Michael Reddell beat me to the punch on this one.

The budget's imposed a customs levy on air travellers to cover the costs of biosecurity border enforcement. Michael makes the simple Coasean point:
  • A new tax on international travel.  I wonder if the government looked at the possibility of levying these costs on, for example, the apple and kiwifruit industries, for whose benefit most of the biosecurity apparatus seems to exist?  Are those industries really economic?
It's a bit beyond that. Somebody bringing hoof and mouth disease into the country would do rather more harm. But the simple Coasean point is that it takes two to make an externality. Either the agricultural sector will impose an external cost on the tourist sector, or vice versa. It isn't obvious which side of the ledger ought to bear the burden.

The rest of his post on the budget is well worth reading, as is his follow-up. I especially liked this potted history in the latter post:
The previous government in many ways deserves a lot of credit for keeping spending in check for their first six years, but the structural surplus in 2006 peaked at 4.7 per cent of GDP (OECD estimate). Those huge surpluses just set up an electoral auction in the 2005 election campaign.  No political party will ever want to be in the position of allowing their opposition to spend the surplus their way –  those choices, about priorities, are a large part of what politics is about.  And the large surpluses built up in the early 2000s didn’t even do much to ease pressure on monetary policy, because they were run up well before the peak pressures on resources (2005 to 2008).  Quite possibly, overall macroeconomic management in New Zealand over the last 15 years would have been a little better if piecemeal adjustments had been made throughout.  We’d never have got into a position where we had highly stimulatory discretionary fiscal policy in the period (2005-2007) of greatest pressure on resources (and on the exchange rate).  And it would also have avoided a situation where Treasury, applying its best professional judgement, finally determined only just before the great recession of 2008/09 that the revenue increases looked permanent.  A high stakes judgement that turned out to be quite wrong.  Fiscal institutions, and ambitions, need to take more serious account of the severe limits of anyone’s knowledge.  A Fiscal Council, as the New Zealand Initiative and the former director of the IMF’s Fiscal Affairs Department have recently called for, might explore some of these issues.  Or a Macroeconomic Council might?  Then again, our academics and think tanks might lead such debates.
The best case we can make for yesterday's budget is that it bought the government time to undertake the more substantial reforms to the benefits system behind the scenes: pushing towards outcome-based contracting, outsourcing service provision, running innovative experiments like Tamaki.

Maybe my expectations have been too high. Under the government's budgetary projections, conditional on continued fiscal discipline, by 2018 government spending as a fraction of GDP will be back to where it was in 2004 under Helen Clark. In 2008, I'd have been very happy for government spending to ever return to 2004 levels. So there's that. Conditional on continued fiscal discipline.

Minimum wage research - the state of play

Adam Ozimek summarises:
Criticisms of the state data approach motivated detailed examinations of how robust the models were to different specifications of pre-existing state and regional trends. Concerns about the sensitivity of the models led tobreakthrough research that focused on employment growth rates rather than levels. This research left the state data results more robust, and also helped explain why the older models sometimes found no effects. Concerns that states raise minimum wages when labor markets are booming have led to research using instrumental variables and federal minimum wage hikes in a state model, the results of which suggest significant job losses.
On the other side, criticisms of the original cross-border pair study led to pioneering research that looked at many cross-border pairs at the same time instead of focusing on one case study. Criticisms about whether the model could actually detect disemployment effects led to research showing that raising the minimum wage lowers job turnover.Other research using cross-border methodology found that while employment effects were small, raising the minimum wage put some firms out of business and led others to open, which implies that long-run job losses may be larger than those in the short run, as adjustments take a long time.
And the research has progressed. One recent paper used data that followed the same individuals over time. It found significant disemployment effects, and that the lost job experience hurt workers even after they eventually found new jobs. Importantly, this work showed that focusing on teenagers or fast food employment, common approaches in the earlier literature, can lead to underestimating the job losses.
A brand new paper suggests low-skilled workers move out of states that raise minimum wages. This new research raises the possibility that mobility and even housing markets may play a role in the effects of the minimum wage.
The historically unprecedented size of recent minimum wage increases means the risk of job loss is higher.
It'll be interesting to see what happens with the California minimum wage hikes.

Thursday, 21 May 2015

From coal-tit to cannibalistic spiders

XKCD's spider explainer has been making the rounds. And one part reminded me of Gordon Tullock.
In 2009, the Back River Wastewater Treatment Plant found themselves dealing with what they called an "extreme spider situation." An estimated 80 million orb-weaving spiders had colonized the plant, covering every surface with heavy sheets of web.[10] The whole thing is detailed in a fascinating and horrifying article published by the Entomological Society of America.[12]
What was the total force of gravity from all those spiders? First we need their mass; according to a paper titled Sexual Cannibalism in Orb-Weaving Spiders: An Economic Model, it's about 20 grams for males and several times that for females.[11] So even if you were standing next to the Black River Wastewater Treatment Plant in 2009, the pull of all the spiders inside would still be only 1/50,000,000th that of the Sun.
The paper models when the female spider will eat the male rather than mate as a function of number of potential males around for mating and other food sources. So opportunity costs and relative prices.

Gordon Tullock founded the field of bioeconomics when he observed that the Coal Tit seemed to apply rational choice in its food search, or at least that one could improve on an avian ecologist's modelling by putting it into that framework. He later founded the journal Bioeconomics.

Here's Janet Landa's summary:
Tullock’s (1971) first published bioeconomics paper titled, “The coal tit as a careful shopper”, was published in The American Naturalist, a scientific journal sponsored by The American Society of Naturalists.

According to Tullock, the inspiration for his coal tit article was provided when he read a book by David Lack (1966)—an avian ecologist—in which Lack summarized the work of J. Gibb (1958) on the coal tits’ consumption of eucosmid moth (Ernarmonia conicolana). Because Gibb used a diagram which, to Tullock, looked somewhat like the economist’s demand and supply diagram, this led Tullock to develop Gibb’s idea by explicitly formulating coal tits’ foraging behavior as an economic optimizing problem by comparing the coal tits’ behavior to that of a careful housewife comparison-shopping in the cheapest market: the coal tit would seek its grubs in those areas where the energy cost would be lowest; in other words, coal tits:
... are maximizing the return to their labor in searching out food supplies... . Presumably, they have inherited an efficient pattern of behavior resulting from natural selection which would eliminate inefficient heritable behavior patterns (p. 77).
Tullock (pp. 79–80) ended the article by saying:
It may surprise biologists and certainly will surprise economists to learn that it is possible to use segments of economic theory to explain biological phenomena. Nevertheless, it seems to me that the problems of biologists are difficult enough so that they should seek help wherever it seems to them that their particular competence may be of value. This essay is, then, an effort, to establish a minor link between two fields that at one time were very closely connected, but have grown apart.
Alas, the 1991 spider paper doesn't cite Tullock.

Next time you see a member of the Swedish Academy who failed to vote for a Tullock Nobel, kick it in the shins for me.

Wednesday, 20 May 2015

A plain English censorship primer

The good folks at the Office of Film and Literature Classification Office tell us they've updated their plain English guide to the censorship laws to reflect the recent legislative changes.

I find anecdotes can be helpful.

Suppose that your 17 year old brings some friends over to watch Game of Thrones. They're all aged 16-18.

If they're watching it on Sky, it's ok. The broadcast comes after the watershed and comes under the Pay TV code of the Broadcast Standards Authority. The warnings are advisory and do not carry legal penalties for viewers.

If instead they're watching it on DVDs you'd purchased, you are in breach of Section 125, which makes it an offence to supply, distribute, exhibit or display a publication contrary to its classification or to allow another person to do this. The fine is up to $3000.

But, now that you know that Game of Thrones Season 4 Episodes 7 & 8 are considered R18, you've supplied it with knowledge that it's age restricted. And so it's Section 126, which has imprisonment for up to 3 months or a fine up to $10,000.

If they'd watched it on Netflix or Neon, you'd be in the same trouble as you'd be in if they'd watched it on DVD.

This kind of plain English explanation can be particularly helpful in explaining precisely how wonderful our current regime is. We can't blame the Censor's Office for this - the legislation is idiotic and needs an overhaul.

But we can wonder about whether it's reasonable to set a rating that makes it illegal to watch a show on DVD that is legal to watch on broadcast. The Censor's Office has RP13 and RP16 ratings it can use allowing children to view the material only when with a parent or guardian. Is it really sensible to set anything that can air on Sky TV as having a harsher rating than RP16?

Tuesday, 19 May 2015

Host responsibility - dairy edition

Since the New Zealand healthists seem determined to rocket us down the slippery slopes from tobacco to alcohol to sugar, let's think about how host responsibility might apply to dairies.

Bars are prohibited from serving alcohol to those who are already intoxicated. That's host responsibility. The healthists want to ban dairies near schools from selling sweet stuff to kids. But is it really all kids who are the problem here, or just the obese ones?

Host responsibility should mean, if applied appropriately here, that dairies shouldn't be banned from selling lollies to kids, just to obese kids. Just like bars aren't banned from selling beer to all people, just to intoxicated ones. They'd have to use a judgement call on who's over-the-line, just like bartenders do. Maybe there could be a training programme.

You'd probably need additional penalties for thin kids who intermediate and on-sell lollies to their friends.

To be clear: I totally oppose this. But do I oppose it more than a blanket ban on all kids buying lollies? Do you?

Note too the great classist implications of banning kids from buying from dairies near schools but not from supermarkets or high end chocolate shops. Maybe we need to refine the host responsibility proposal to target only obese kids who look poor. Because that's what's really intended, isn't it?
But not high end chocolate milk?

Monday, 18 May 2015

A tweak for road user charges

New Zealand's road user charge system, in which petrol excise is a level rate but diesel charges vary with the weight of the vehicle, seems likely due for a rethink in the next few years. The bigger change will be needed as electric and hybrid cars take up a greater proportion of the fleet.

But here's a little one that could be bundled in at the same time.

Currently, every diesel owner has to report mileage and pay their road user charges. Smaller vehicles have a low per-km charge; large ones have a larger charge. It would be trivially easy to impose excise on diesel equivalent to the costs that small diesel vehicles impose on roads - the same as the petrol levy. Then, exempt small diesel vehicles from having to pay road user charges while lowering the tariffs for larger vehicles' road user charges.

You'd maintain the appropriate link between vehicle weight and road user charges while saving a pile of smaller diesel vehicle owners the hassles involved with road user charges. And as more smaller vehicles switch over to diesel, it seems a simple change worth making.

Update: the comments section has helpfully pointed out the substantial issue with this scheme:

  1. Because much diesel is used off road, we'd have a trade-off between the hassles of RUC for small diesel vehicles and the hassles of running an untaxed stream of diesel that could leak back into the road market. When I was a kid in Canada, petrol for on-farm use had purple dye in it, and vehicles that were not registered for farm use were forbidden from using it; they had occasional checks, and a purple tinge in your carborator could be used against you.
  2. The actual hassles of paying RUC for small diesel vehicles is smaller than I had been led to believe by the diesel owner who pointed me in this direction. So it seems highly unlikely that the overall scheme is hassle reducing.
I consequently withdraw the suggestion.

Friday, 15 May 2015

LVRs and central bank independence

In this week's NBR, I worry a bit about whether the RBNZ's going well beyond its mandate with the LVR policies. Absent strong evidence of systematic risk that would trigger the prudential supervision role, what mandate do they have to dictate which kinds of collateral must be put up by which kinds of lenders?

A snippet:
Why does all of this matter? Auckland house prices seem well deserving of a policy response – should we not welcome the RBNZ’s continued attempts to chisel the peaks off of this mountain? 
Unfortunately, the policy move itself has substantial risks. We have yet to see any assessment of the costs that designating a new asset class might impose on the banks that will have to comply with the regulation. There will be tricky boundary cases: if a buyer secures a loan against his existing property and against a new purchase, with intention of selling the former after the move, would that count as an investor or owner-occupied purchase for application of the LVR? 
But the more important risk is to RBNZ credibility and independence. New Zealand pioneered central bank independence and the world followed. The Policy Targets Agreement which forms the basis of the Bank’s operational independence is a thing of beauty. But the Bank’s independence is only politically sustainable to the extent that it complies with its mandate and does not undertake actions that fall outside of its mandate. 
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