Eric Crampton

Dr Eric Crampton joined the New Zealand Initiative as Head of Research in August, 2014. He served as Lecturer and Senior Lecturer in Economics at the Department of Economics & Finance at the University of Canterbury from November 2003 until July 2014. The Dismal Science syndicates some of his blog posts from Offsetting Behaviour. Eric is on Twitter @ericcrampton

Tipping in New Zealand - The Dismal Science

May 25, 2017

New Zealand has an excellent non-tipping equilibrium, but there’s been some discussion of encouraging a shift to tipping. A lot of restaurants do kinda have it, mostly (I think) as a way of securing rents from foreign tourists who don’t know better. But most of the discussion around tipping has the base economics of the thing wrong. The main point of tipping is to solve an information asymmetry problem. Suppose you own a restaurant and simply have no way of telling which of your wait staff are decent with the customers and which are terrible. In that state of the world, you pay them a low hourly wage and encourage the customers to top it up based on the quality of service. Ideally, this means that bad wait staff get no tips and exit the industry, average service gets an … Read More

Mandatory labelling – again - The Dismal Science

Apr 24, 2017

Twitter suggests there’s a pretty common fallacy out there that needs a bit more thorough treatment. Here’s how it looks: Free markets require informed choices Therefore the government should compel companies to label their products about things that I happen to care about. Otherwise how can people make informed choices? Why is this an error? There’s an infinite array of things that could show up in (2) as basis for labelling because different people care about different aspects of products. In the absence of mandatory labelling, consumer demand combined with labelling costs ultimately drive what gets put on a label. Consider country of origin labelling. Some suppliers specialise in a pure NZ product – and proudly say so on the label. Others will shift supply depending on what’s going on in different markets: some disease outbreak might hit pork from … Read More

Hypothesis testing: open data edition - The Dismal Science

Apr 18, 2017

Credit: Saturday Morning Breakfast Cereal. The graph looked plausible. It didn’t really fit my experience, but it didn’t seem implausible either. So I took a 5 minute jaunt over to Berkeley’s SDA engine, which draws on US GSS data. First I ran a basic regression of happiness on age, age squared, with a high score in wordsum (a vocabulary test) as my nerd interaction term. Berkeley lets you run the regression right in the website. I’m not sure I’ve got this one right – can’t guarantee that I properly excluded where they used a code for missing data.     Then I downloaded the data to plot things a bit more nicely in Excel, because you can generate custom data extracts on the fly. I’d not done that before; learning how to do it took 5 minutes … Read More

Water pricing and bottling plants - The Dismal Science

Mar 27, 2017

And here we go for another edition of “Because you’ve misspecified the problem, your proposed solution might make things worse.” The past couple of weeks have had renewed anger about water bottling plants. If you buy land with water drawing rights attached to it, you don’t get charged for drawing that water. The value of the water is baked into the selling price of the land. And so whoever owns the land with the drawing rights gets to appropriate any unexpected increase in the value of water drawing rights, and anybody buying land at market with those rights would, expectationally, only wind up earning a normal rate of return on that investment. So far so good. But when people buy land to irrigate paddocks, run cows, milk the cows, dry the water out of the milk, and export the milk … Read More

Reducing the alcohol purchase age and risky driving - The Dismal Science

Mar 07, 2017

Reducing the alcohol purchase age from 20 to 18 did not increase the number of road accidents. If anything, risky driving dropped for a while. Stefan Boes and Steve Stillman have updated their earlier work (noted here) on New Zealand’s alcohol purchase age to bring in some more recent accident data to allow for longer term trends. It’s now up as an IZA working paper. They make an important methodological point – one that applies to a lot of work on minimum legal drinking ages. It is really easy to set up a regression discontinuity design using the birthday as the point of the discontinuity. The 17 year old, before the birthday, is the same person a week later, except with access to alcohol. Sure. But the RDD method can’t tell you whether you’ve identified a birthday effect … Read More

Govt requests NGO client data – Why do they need this? - The Dismal Science

Mar 04, 2017

I’m a big fan of letting NGOs benchmark their effectiveness using government data. But I don’t quite get why the government needs NGOs to collect some of this information on their behalf. Here goes. The government holds a huge amount of linked administrative data on all of us in the Integrated Data Infrastructure. All kinds of stuff can be linked up in the back end, under some pretty tight access controls. The government’s now demanding client information from NGOs who are the contracted service delivery arms for the Ministry of Social Development. The Privacy Commissioner is investigating the Government’s demand for client information in exchange for funds, after non-profit groups raised concerns. The Ministry of Social Development’s (MSD) new requirement for non-governmental organisations (NGOs) to supply identifying client information has blindsided non-profit groups. Every person accessing MSD-funded services must … Read More

Mexican soda and sweet storable substitutes - The Dismal Science

Mar 02, 2017

A couple more important points on the Mexican soda tax,  which I discussed in relation to a recent report on sugar taxes in New Zealand. First from the comments on Tuesday’s post: Mexicans also love to drink uncarbonated sugary drinks, like horchata, and drink more of those now carbonated beverages are more dear. Much of that market doesn’t go through regular retailers, being sold by street vendors and cafes, so I doubt they have any idea how much is being drunk. The Public Health people are also very naughty about their moving target. They say “sugary drinks”, but they can’t ever mean that, since they would have to tax a whole bunch of fruit juices. Sometimes they move to “soda” or carbonated, but I’m guessing that they won’t include any wines in that. What they want to tax is … Read More

Reading Creedy: Sugar tax report - The Dismal Science

Mar 01, 2017

John Creedy is really good at using complicated maths to make simple points. I’ll summarise the simple points in Creedy’s working paper on sugar taxes, issued earlier this month. Section 2.1 shows that, whenever people enjoy a bundle of goods of various healthiness, and whenever people are likely to shift from one good to another if prices change, any tax on a particular unhealthy good might reduce consumption of that good while increasing consumption of other less healthy goods. Consequently, you can’t just say that a soda tax would improve health – you need to show what the effects are across a broader set of consumption goods. At minimum the you’ll get less than you’d hoped for in terms of effects; it’s even possible to wind up getting worse health outcomes. Sections 2.2 and 2.3 work through the maths … Read More

Picking zones and picking winners - The Dismal Science

Feb 22, 2017

The push for more localist approaches to policy problems in New Zealand continues to gather steam. Earlier this month, the McGuinness Institute argued for what they’re calling Demarcation Zones for policy trials. Their formulation differs a bit from what we at the Initiative proposed in 2015, but the core idea is similar: let local communities take on additional devolved powers and see what policy variants seem to work better in which places. I go through some of the differences in last week’s print-edition NBR column. Here’s a snippet of the piece: Trialling policy at a local level can make a lot of sense. Not only does it let policy be more sensitive to local conditions, it also helps central government figure out what kinds of policies might work in a broader rollout. But it will always be tempting … Read More

Junk food taxes: more sweet silliness - Unsorted

Feb 16, 2017

A new paper suggests strong public health benefits from junk food taxes in Australia. Blogging has been light as I’ve too much on deck in the day-job currently, but since a few people have emailed me asking about this one, I might as well put here what I’ve told them. The effects found in the paper depend on how consumers respond to price increases. Those elasticities are drawn from a 2013 paper estimating elasticities in New Zealand using an Almost Ideal Demand System setup across a couple dozen food categories in household expenditure survey data. But responsiveness of spending to changes in average prices doesn’t tell us about consumption if people can shift to cheaper brands within the same category, as John Gibson’s Marsden-funded work shows. And I expect the problem will be worse due to the … Read More