Update: Wiki New Zealand is now Figure.NZ. Read about the reasons for the new name here. I’m really excited to be appointed as Data Counsel at Figure.NZ (formerly Wiki New Zealand), and I could be your Data Counsel too. What’s a Data Counsel? I’ll explain, but first… Figure.NZ is on a mission to democratise data […]
Data Counsel Jul 30
That performance-enhancing drugs are used and that this use is a controversial issue has been clear since competitive sports first began. You could argue that drugs are just another way of improving performance, like better training methods or improved nutrition, so what’s the problem? The Cisyk and Courty column argues that of the three major rationales for regulation – athletes’ health, fairness, and audience losses – the damage to audiences is the most convincing rationale for regulation. The evidence they discuss shows that doping causes measurable economic damage. Teams and leagues competing for audience attention may not internalise all externalities associated with doping, and they face a time-inconsistency problem when they discover it.
Doping has been a controversial issue since competitive sports first began. There is even evidence of drug use by ancient Greek and Roman athletes. The first modern regulation of doping was instated in 1928. Since then, bans on performance-enhancing drug have received constant attention in the media. While most people believe doping should be regulated, few agree on why, where to draw the line, and how to manage enforcement.
- The main rationale offered by the medical community and some sports experts and ethics scholars is that constraining doping is necessary to protect the health of athletes.
However, many sports themselves are inherently dangerous. Taken literally, the protection argument would call for pro-safety interventions that go beyond regulating such drugs. This would not be supported by most people.
- Others argue that sports competition requires a level playing field.
However, doping is just another technology to improve performance and there are rules to deal with what contestants can and cannot do to win.
- A final rationale is that doping harms the public.
Broadly interpreted, this means that doping imposes a negative externality. A sport generally involves many stakeholders (athletes, teams, league, broader sports organisations, sponsors, and the public) who have vested interests in organised competitions. Fans commit to a sport and make specific investments to support a team. When doing so, they care about the quality of future events and may suffer a negative externality if they value the sport less when athletes do not comply with doping rules.
With prevailing large stakes, athletes and teams benefit from doping if it increases the chance of winning. A league may also benefit if doping increases the entertainment value; that is, as long as the public does not find out. The economic rationale for regulating drug-use rests on the assumption that fans value a sport less when athletes use them.
But is such an assumption reasonable?
The research that Cisyk and Courty discuss is the first work that offers definitive evidence that the demand for a sports event is negatively affected by news about drug use. The evidence is based on ticket sales (rather than random respondents interviewed in surveys) and measures actual demand responses instead of consumer opinions. A basic rule of economics is, take notice of what people actually do rather than what they say they will do.
Cisyk and Courty leverage the 2005 introduction by Major League baseball of a new set of random tests for drug use. Under this new policy, a positive test is immediately announced publicly and the player is removed from the team. This policy yields unique data for investigating the impact of drugs violations on attendance.
Obviously if the public really cares about drug use, you would expect a decrease in attendance following a suspension and what we see in the data is such a decrease. Interestingly, there is no decline in attendance for injury announcements.
So a reason to enforce doping regulation is to protect consumer interest. But who should regulate doping? Cisyk and Courty comment,
Teams lack motivation to align with the public interest. The same holds for leagues. The incentives to self-regulate and honour the interests of fans are limited. Again, this is because leagues compete for audience attention and they may not internalise all externalities associated with doping. Leagues also face a time-inconsistency problem when they discover that doping takes place. Our work demonstrates that doping reduces fan interest, and players, teams, and leagues may not fully internalise these losses.
Crisitunity revisited Jul 29
Who’s got two thumbs and got ‘crisitunity’ into a Herald headline? This guy here.I there expanded on the arguments I’d made at the Initiative’s blog: if there is any big flood of foreign money that wants to be involved in Auckland housing, it is ridicu…
Playing in the SandPit Jul 28
I’ve been blogging a bit over at The Sandpit – the NZ Initiative’s blog. A few recent highlights there:Eminent domain is not nearly as awesome as the latest Productivity Commission report makes out.Notes from my chat with Bryan Crump at Nights on Radio…
Eminent domain (updated) Jul 27
A couple of days back I downloaded the Kindle version of Ilya Somin new book on the problems with eminent domain, “The Grasping Hand: ‘Kelo v. City of New London’ and the Limits of Eminent Domain“. This has turned out to be very timely given that The Productivity Commission has come up with the most appalling policy idea I have seen in I don’t know how long, that is, the idea that there is a potential role for compulsory property acquisition in assembling large-enough land parcels for achieving proper economies of scale in construction of housing as a way of dealing with problems to do with the supply of land for homes.
Hold-out problems are the usual justification for use of eminent domain. Suppose that you’re a property owner. You get wind that a big developer is planning something substantial for the neighbourhood – and that it would include your property. If you know that everybody else has sold their rights to the developer, well, you could charge a price that would have you get a pretty substantial chunk of the developer’s profits. Or, suppose you got wind of where the government was planning on putting in a roading project. If you bought up the properties ahead of the government, and if you knew the government didn’t have other options for the route, you could hold the government to ransom for that property. And so the threat of eminent domain expropriation guards against this kind of strategic behaviour that can threaten the viability of beneficial projects.
But is it the only way of solving hold-out problems? And are hold-out problems even the binding constraint here?
I have been a fan of option contracting as a way around hold-out problems. Suppose you’re the same property owner above. The developer comes to you and offers you a deal. The deal is this. He’ll pay you $10,000, right now, for the option to buy your house in a year’s time at a price that looks fair to you. Whether or not he buys the house in a year, you get to keep the $10,000. He says he’s putting together land for a development but he isn’t quite sure where he wants to put it yet – it could be here, it could be someplace else. You can’t tell whether you’d be the hold-out as you neither know whether your neighbours have signed up, nor whether your property would wind up being used anyway. If the developer is clever, he’ll have identified a couple of sites that could work reasonably well for the project and would be buying options over both sites. You can’t do better than taking the $10,000 in hand, if you think the price is fair. If you don’t, the sale would be inefficient anyway.
Hold-out is pretty cheap in an environment with ever-escalating land costs due to stupid zoning rules. You lose nothing by just sitting on the land and waiting for the capital gains. Some developers have told me that, in hindsight, they should never have bothered trying to put housing up in some parts of Auckland – the costs of dealing with Council meant that they’d have earned a much better return by just landbanking rather than developing. But that changes where the other policy recommendations from ProdComm come into play. When far more land can be put to its most productive use, you can’t expect that your little plot will forever appreciate. Another offer to develop might not come because the development will have gone elsewhere.
Is land assembly through option contracting feasible? It worked where I grew up. Manitoba Hydro wanted to put in wind turbines. Before they did the wind mapping, they bought options from all the farmers where they might have wanted to place the turbines. Where they had options over a long enough ribbon of land where the wind turned out to be right, they exercised those options and put up the turbines. Nobody could hold-out because nobody knew where Hydro would want to put the turbines and because there were multiple potential options. Some people didn’t sell Hydro the option because they didn’t think that the price that Hydro was offering for access to the turbine site was worth the hassle it would cause in the field – and fair enough. But in an eminent domain version, every one of them would have been considered a hold-out and forced to sell.
Think about how this eminent domain proposal would pan out in New Zealand practice. ProdComm talks of using it in a Urban Development Agency (UDA) for Master-Planned developments. In practice, that would mean the UDA in partnership with a big developer strong-arming homeowners to sell out, on threat of forced sale, in order to put up a new subdivision or higher-density development.
Think too of all the land assembled under threat of compulsory purchase in Christchurch. How much of that is now in more productive use? Was small owner hold-out the main problem there? Really?
As alternative, the UDA could instead maintain a register of the owners of the fragmented property holdings and pass along option contract offers to the owners, lowering the transactions costs of assembling the land. They could also pass along declined offers to Council, that Council might update its land valuation figures. If you’ve turned down a million dollar offer on a site that’s rated at $500,000, well, the rating is probably too low.
A question I wonder about with eminent domain is, How do you know that a person who is not willing to sell is in fact holding-out? After all a refusal to sell could just mean they value their property more than the price they are being offered. There may be nothing strategic in what they are doing at all. Especially when it comes to homes or businesses. They may just want to live or work where they are. Consider that they could have sold their property for the market price at anytime but they haven’t. I would assume this is because they don’t think the market price is high enough to compensate them for the loss of the property. So how is forcing them out efficient?
I’ve used this week’s New Zealand Initiative column at The NBR, in part, to pay a little tribute to Seamus, whose funeral is today.
For the eleven years I taught in Canterbury’s economics department, we provided what I think was the country’s best technical training in microeconomics. That was due, in no small part, to my good friend, and then-colleague, Associate Professor Seamus Hogan.
Seamus died last Friday, aged 53, of a brain aneurysm.
Seamus trained a generation of Canterbury economists. His intermediate-level course in microeconomic theory gave every student the technical background they would need to understand either mainstream problems or those coming from the fringes. His honours-level capstone course built on those foundations to show students the cases in which the standard model worked, the cases in which it didn’t, and the ethical presuppositions of different frameworks. In highlighting just what was meant by an efficiency norm, it was deeply critical of parts of the mainstream consensus. But it simply could not be done without the technical and mathematical apparatus established earlier on.
To put it tritely, you can’t think outside of the box unless you understand the box very well indeed. Sure, you can stand on the fringes and yell about the evils of neoliberalism, as many of those re-tweeting Parker’s article like to do, but your critique will be as empty as Jenny McCarthy’s condemnation of vaccines. Seamus taught his students to build the boxes and then twirl them on their index fingers.
Seamus’s students knew how lucky they were to have received proper training in economics with him, rather than a Post-Autistic-styled curriculum. A memorial webpage is already filled with their tributes. One of his students, who spent time at the Reserve Bank before heading off for a doctorate at Berkeley, rightly identified him as the “key factor in making Canterbury economics graduates so well represented in Wellington.” Seamus set and maintained the rigorous academic culture in the department that would not compromise the quality of the teaching programme and that would not pander to trendy, but ultimately fruitless, critiques of the mainstream.
Being able to understand the standard framework matters because so much is built upon it.
Earthquakes brought budget cuts. Scepticism of the value of rigorous theoretical approaches relative to Manchester-style critiques meant the end of Seamus’s courses, despite their popularity. Seamus died six months after moving his family to Wellington, where he had joined Victoria University’s School of Government.
Academia needs a little paternalism. The tributes of those who have gone through the courses should count for more than the whims of those who do not yet know better, and now will not get the chance to.
I’m back in Christchurch for the day serving as pall-bearer and will say a few words in memorial at the service.
Some in the Department at Canterbury have set up a GiveALittle page accepting donations towards the continuing education of the Hogan kids. I’d be surprised if Seamus hadn’t adequate life insurance, as he was one of the most ridiculously conscientious people I’ve known, but if it feels good to help a little, hit the link. I’ve suggested that it be put towards continued musical tuition. It mattered a lot to Seamus, and they’ve lost their main tutor.
The bigger issues around what Economics departments now can and should offer are, for me, under a Somebody Else’s Problem field. But I don’t envy my former colleagues their task: I think they’re now at a staffing complement of 8.5, including two teaching fellows, where before the earthquakes we were 19.6.
Seamus Hogan Jul 21
Seamus Hogan died Friday of a brain aneurysm. He is survived by his wife Sarah, and their three children.I met Seamus in 2003 when I joined the Economics Department at Canterbury. He was the best colleague anybody could ever hope to have: the kind that…
Olivia Wannan reports on the latest drink driving fatality statistics:The law changed on December 1, cutting the limit from 80 milligrams of alcohol per 100 millilitres of blood to 50mg, and from 400 micrograms of alcohol per litreof breath to 250mcg.I…
Some sense on vaping Jul 15
There are now more ex-smoking vapers helping smokers to quit than there are paid smoking cessation practitioners. Meanwhile, Government-paid smoking cessation workers peddle their patches and gum, sprays and meds, and insist upon smokers attending group therapy.
If the Government and public health advocates stuck to a precautionary approach we could almost forgive them, but the market is changing at such a rapid rate that there is a real risk the Government and advocates get trapped in the past and become blinkered to the future.
It annoys me that the disparity between Māori and Pākehā smoking rates will widen since Māori will be less likely to access nicotine via the internet – the predominant medium for accessing these new products.
But, at least we still have time to debate the role of nicotine in our society. Are we really going to get all puritanical about people using nicotine if it’s in a form that is no more harmful than their coffee addiction?
Didn’t we do all this smokefree campaigning to reduce disease and early deaths?
Perhaps it’s time for public health to stand aside and let smokers help themselves now that there is something better than smoking that they can switch to.
Emphasis added. Endorsed, obviously.
New Zealand Economic Papers has some interesting papers due to appear in future issues.From complete to incomplete (contracts): A survey of the mainstream approach to the theory of privatisation.AbstractPrivatisation is a common, yet controversial, pol…