Archive September 2012

Doing Well by Doing Good: Sports Edition Seamus Hogan Sep 29

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New Zealand play Argentina in the Rubgy Championship again this weekend, so there will likely be more discussion of the role that the immediate past New Zealand coach, Graham Henry, has as a coaching advisor to the Argentinian team.  When the two teams met a couple of weeks ago in New Zealand, the media commentary on this focused on patriotism (how dare Henry work for the opposition), industrial espionage (there should be a stand-down period between coaching stints for different teams, since Henry still has information about current NZ structures), and social policy (it is good for the game to provide help to the less-strong teams). In contrast, no-one seems to have considered the possibility that Henry's assistance to Argentina could be good for New Zealand. File this one under Honours problem sets I would like to write if I were teaching an appropriate course. The model is as follows: The Rugby Championship is a two-round, round robin tournament (home and away) involving four teams: New Zealand, Australia, South Africa and New Zealand. New Zealand is clearly currently the strongest of the four teams and Argentina the weakest. The disparity is not so great that any result is a foregone conclusion, but realistically the gap between New Zealand and Argentina is large.  The biggest threat to New Zealand in the competition, then, is not the prospect that they might lose to Argentina. It is that they might split their two-game series with the other two teams, and have the competition decided by bonus points. Helping out Argentina, therefore, would be to our advantage, if it raised the probability of their beating the other two teams by more than if it raised the probability of their beating New Zealand. I have no idea just what assumptions would be needed to make this model work, which is why I think it would make a great problem set. There might even be a letters-style publication here. I'll put co-authorship out for tender!

Popcorn, Parking, Exercise and the Theory of the Second Best Seamus Hogan Sep 28

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The University of Canterbury recently announced that it will be charging faculty and students alike something close to marginal cost for parking. The stated reason was that they saw no reason why scarce resources should be allocated to providing an amenity benefit that is of value to some staff and students but not to others. The economists, of course, cheered. A parking permit at Canterbury is currently very cheap, but it is only a licence to hunt, not a guarantee of a park. We have been saying for years that parking should be charged at a market-clearing price. After all, charging parking at less than marginal cost generates a deadweight loss in which the marginal units consumed are valued at less than cost, and so reduces the total value that the university can deliver to staff and students. If there was a reason for thinking that the UoC-specific elasticities of demand of students or of labour supply of staff are higher for those who want parking than those who do not, you could make a Landsburg popcorn price-discrimination argument for subsidising parking, but that assumes that the University is a profit-maximising monopolist, rather than a not-for-profit utility maximising institution. Then today, I heard from students that in another move, the Univeristy is increasing the student levy next year but including free gym membership as an offset. My first reaction was that this is the exact opposite of the move to increase the price of parking, and is silly for exactly the reasons that the former policy makes sense. But then it became clear. The students explained that a student levy can be added on to a student's interest-free student loan, whereas the cost of gym membership as an optional extra cannot. Given that every dollar of student loan is roughly equivalent to a straight out grant from the government of 33c if it is paid off at the slowest possible rate (from memory of a back-of-the-envelope calculation I made some time ago, so don't take this number to seriously), the new policy might make sense as a way of increasing the total government contribution to the University, as long as that benefit outweights the effect of the created deadweight loss, including, possibly, the cost to some students of having to queue for gym services. But then I reaslied, we have to pay for parking permits out of after-tax income, but the University's expenditure on parking net of parking fees is not subject to fringe-benefit tax. So subsidised parking is also a way of increasing the government's total contribution to the University......   Isn't second-best analysis fun!

What’s the use of National Standards data? Eric Crampton Sep 28

The anonymous blogger at Emil's Demesne* provides a few useful insights on how we might use National Standards data. For readers outside of New Zealand, school-by-school data on student achievement rates will soon be published. An early version of that data came out this week when Fairfax compiled results from those schools willing to release their data early; the rest will wait until the government publishes the comprehensive dataset. Emil begins:
My own prejudices. I am a policy analyst with nil expertise in education. I support publication of national standards data. I am agnostic as to whether national standards should have been introduced in the first place, but furious at those “public servants” who sought to obstruct implementation of a lawful Government policy: no integrity.
I’m mainly interested in what the standards data can and can’t tell us, and how they might be used to improve education outcomes. The lens I’m trying to look through is how would I tackle this if I were at the Ministry of Education?
He follows up:
Where cross-school comparisons might come in useful is in identifying stand-out schools so that successful and/or innovative practices can be, where appropriate, replicated more widely. Obviously, what works in a school within one particular cultural, social, and economic context won’t necessarily work for a school that’s in a totally different one. You do your data analysis and your case studies, then you devise sensible categories and work within them.
So long as moderation is at least better than hopeless, in time, we’ll also learn quite a bit more than we already know about the impact of social and economic factors on academic attainment during the early years of school. This is important, because it’s these early years that are assumed to matter most. National standards data, for all its flaws, is or can be made rich enough to support meaningful research that will help us improve how we teach our children.
Depending on whether or not I can be bothered, I might write up some stuff on why I don’t like deciles as analytical tools. But not this week.
The post has nice context around why we shouldn't expect standardized testing or strong grade moderation in New Zealand. What should parents be looking at rather than just a school's ranking?
I’d look for signs that schools are using the standards sensibly on a student level. Especially for students not at standard, I’d want to see individualized learning plans, with achievable benchmarks/milestones. Ideally, these plans would be designed in and as a collaboration between teacher, student, and caregiver. Give the student a sense of direction and ownership: here’s what we want you to be able to do, here’s our plan for getting you there, and here’s how you’ll be able to feel your own progress along the way.
Over time, I’d look for signs that schools are using standards, in conjunction with the learning plans, to do some value-added appraisal of teachers. I would incorporate this formally into professional development structures. I accept that there’s only so much a teacher can be reasonably expected to do for kids who turn up hungry, have caregivers with significant reading difficulties, or who switch between schools a lot. (These are, incidentally, things that are thought to correlate pretty tightly with decile.) Placing appropriate weight on factors like this is something that I think standards will be able to do over time, even if they’re fairly messy.
Helpful advice. Our oldest starts in at proper school in February next year. * Emil previously brought us chapter 1 of a short story chronicling how the Wellington bureaucracy might respond to a zombie outbreak, partially as follow up to a fun Twitter hashtag. I look forward to the story's second chapter.

EconTalk this week Paul Walker Sep 27

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Robert Frank of Cornell University and EconTalk host Russ Roberts debate the merits of a large increase of infrastructure spending. In the summer of 2012, Frank and Roberts were interviewed by Alex Blumberg of NPR's Planet Money. That interview was trimmed to ten minutes for a Planet Money podcast. This is the entire conversation. Frank argues that a trillion increase in infrastructure spending, where the projects are decided by a bipartisan commission, would put people back to work and repair a near-failing system at a time when it is cheap to repair it and cheap to fund those repairs. Roberts disagrees with virtually every piece of Frank's argument. This lively conversation covers fundamental disagreements over fiscal policy, the proper role for government, and the political process.

Education regressions Eric Crampton Sep 26

Luis at Quantum Forest has been doing some great work with the schools data. I'm picking up on it with a few regressions. Raw performance data for the schools isn't all that instructive as schools have very different raw materials with which to work. But it would be nice to know how well a school does given the decile and ethnic mix of students coming into the classroom. So let's check that. I'm using Luis's data here, modified slightly to work in Stata: I replaced the NA cells with . so that Stata would read things as numeric variables rather than strings. My do file and dta file are up at Dropbox. Like Luis, I started by generating a variable giving the proportion of students either meeting or exceeding the standard in each of reading, writing, and maths. I then ran a few simple linear regressions with analytic weights equal to the total school roll: the dependent variable is an average and the schools average over different numbers of students. Covariates are decile, decile squared, the number of students per full time teacher equivalent, proportion of each of {Maori, Pacific, Asian, International, Melanesian [MELAA, which could be an acronym for Middle-East, Latin America and Africa, says Kiwi Poll Guy in comments; he's likely right], Other} students (European dropped), indicator variables for each of {minor urban area (town), secondary urban area (suburb), main urban area (rural dropped)}, indicator variables for single sex boys and girls schools (co-ed dropped), an indicator variable for state schools (integrated schools dropped), an indicator for boarding schools, and indicator variables for each of the main types of school {composite, contributing, intermediate, secondary (full primary dropped)}. Results are in Table 1, below. But first, a caveats. As best I understand things, these grades are not moderated. So any effects here could be saying either that some schools do a better job in teaching, or that some schools engage in grade inflation.
Table 1: Full sample: Reading, Writing, and Math
(1) (2) (3)
Reading Writing Math

decile 0.0485*** 0.0363*** 0.0437***
(6.53) (3.67) (5.27)
Decile squared -0.00224*** -0.00110 -0.00195***
(-4.39) (-1.62) (-3.41)
Students per teacher 0.00282* 0.00362* 0.00215
(2.41) (2.35) (1.65)
Proportion of Maori students -0.0664* -0.0848* -0.112***
(-2.20) (-2.13) (-3.34)
Proportion of Pacific students -0.115*** -0.114** -0.0676
(-3.52) (-2.63) (-1.86)
Proportion of Asian students -0.0796** -0.0787* 0.00448
(-2.63) (-1.97) (0.13)
Proportion of International students 0.290 0.863** 1.510***
(1.23) (2.79) (5.76)
Proportion of MELAA students 0.0952 -0.0934 -0.0722
(0.61) (-0.45) (-0.41)
Proportion of students Other ethnicity 0.428 1.043* 1.040**
(1.35) (2.50) (2.92)
Minor Urban Area (Rural dropped) 0.00817 -0.0104 -0.0257
(0.62) (-0.60) (-1.76)
Secondary Urban Area (Rural dropped) -0.0189 -0.0283 -0.0416**
(-1.33) (-1.52) (-2.63)
Major Urban Area (Rural dropped) 0.00890 -0.00366 -0.0186
(0.80) (-0.25) (-1.50)
Boys school (co-ed dropped) 0.101*** 0.118*** 0.205***
(3.90) (3.48) (6.87)
Girls school (co-ed dropped) 0.125*** 0.181*** 0.142***
(5.60) (6.16) (5.44)
State school (integrated schools dropped) -0.0246* -0.0594*** -0.0219
(-2.49) (-4.58) (-1.96)
Composite (Year 1-15) (Full Primary dropped) -0.0221 -0.0566* -0.0384
(-1.14) (-2.23) (-1.79)
Contributing (Year 1-6) (Full Primary dropped) 0.0127 0.0345*** 0.0338***
(1.77) (3.64) (4.23)
Intermediate (year 7 and 8) (Full Primary dropped) -0.0673*** -0.0974*** -0.107***
(-6.07) (-6.64) (-8.65)
Secondary (Year 7-15) (Full Primary dropped) -0.0939*** -0.110*** -0.158***
(-6.78) (-6.06) (-10.15)
Boarding school -0.00755 -0.0716** -0.0475*
(-0.39) (-2.79) (-2.01)
Constant 0.574*** 0.527*** 0.569***
(15.48) (10.75) (13.78)

Observations 1006 996 1000
Adjusted R2 0.528 0.467 0.532

t statistics in parentheses * p < 0.05, ** p < 0.01, *** p < 0.001
Decile matters greatly. All else equal, a school one decile higher has about a four percentage point increase in pass rates. But, decile matters at a decreasing rate: moving from Decile 2 to Decile 3 correlates with a 3.3 percentage point increase in maths pass rates while moving from Decile 8 to Decile 9 only improves pass rates by one percentage point. Class size matters: schools with more students per teacher have higher pass rates. I suspect reverse causation here: for a fixed budget, those schools that are able to run larger classes are likely those that have fewer discipline problems and so are able to put those resources to other uses. Ethnicity matters. A standard deviation increase in the proportion of Maori students reduces aggregate pass rates by 1.3 percentage points in reading and 2.2 percentage points in math. Similar trends exist for Pacific Island student ratios. I'd be pretty cautious in interpreting this one: if you run things decile-by-decile, the effects mostly disappear. The biggest negative effect seems to hold in high decile schools, but by the time you get to Decile 10 schools, the median school has only 5.9% Maori students. Results then may be a bit sensitive to a few outliers on the right hand side. Like Luis, I'll refrain from doing much more until the official results come out. Single sex schools seem to do well; boarding schools seem to do poorly. I generated residuals from each of the three specifications above. The residual tells us whether a school had a higher or lower pass rate than we would have expected given its characteristics. This either tells us how good (or bad) the school is at teaching, or how good (or bad) it is at grade inflation. Without external moderation, it's hard to tell. The residuals from the three specifications correlate strongly with each other: schools that are good (or grade inflate) tend to do so across the board. The lowest pairwise correlation was 0.57; the highest was 0.63. I averaged the residuals to get a composite score. A high residual means that the school's actual pass rate was higher than what we would have expected given its characteristics. I'm not confident enough in the model to put up my own league table of residuals. But I will put this up. This is a scatterplot of the residuals showing just how much school performance varies after we have corrected for decile, ethnicity, and everything else in the above model. That can point to its being a bad model, the underlying data being bad, strong differences in teaching quality across schools, or a combination of all three.
There are decile 1 schools providing pass rates twenty percentage points or more above what we'd expect, given their characteristics (that's the 0.2 number on the y-axis); there is one decile ten school providing pass rates more than twenty percentage points below what we would expect given its characteristics. Differences in school performance simply do not come down only to decile. Decile's the most important thing. But differences in performance among schools of the same decile by definition have to be about something other than decile. I can't tell from this data whether it's differences in stat-juking, differences in unobserved characteristics of entering students, differences in school pedagogy, or something else. But there's something here that bears explaining.

The outlook for oil: An interview with Hamilton Matt Nolan Sep 26

No Comments has a good interview with James Hamilton from Econbrowser up on their site.  I’d suggest taking a look ;) As will one day become clear, one of the big drivers of the slowdown in the developed world has been the sharp increase in commodity prices – specifically oil.  While the global financial crisis was a major driver, it is also possible to make the case that part of the reason for the run up in debt was an assumption by households and individuals that the lift in oil prices would be temporary – when in fact it looks like it is a relatively persistent shift up. As stated here:
James StaffordWhenever oil prices spike politicians are quick to blame speculators and oil companies for manipulating the markets. Are you in agreement with this – are speculators and oil companies to blame? Or are there other factors that are overlooked deliberately or otherwise by the mainstream media? James Hamilton: The story is pretty simple, and even though politicians may try to distort it, you’d hope that the media would do a better job of reporting the truth than they have.  World oil production was basically stagnant between 2005 and 2008, even though world GDP was up 17%.  With economic growth like that you’d normally expect increased demand, particularly from the rapidly growing emerging economies, and in fact China did increase its consumption by a million barrels a day over these 3 years.  But with no more oil being produced, that meant that the rest of us– the U.S., Europe, Japan– had to reduce our consumption.  It took a pretty big price run-up before that happened.  To those claiming the price is too high, I would ask, how high do you think the price had to go to persuade Americans to reduce oil consumption by a million barrels a day?
We have seen demand rising (on the back of increasing productive capacity in the developing world) while supply has stagnated.  Many times people have told me “there is heap of oil lying around” – and this is true – but the question is, “what is the cost of extracting this oil”.  Even some of the most optimistic people say that we shouldn’t expect oil prices to fall below $70US a barrel in current dollar terms. The big saviour will hopefully be technology – higher prices drives the incentive to find substitutes.  However, that doesn’t stop the intervening period being painful.

Auckland stadium review Sam Richardson Sep 26

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This column by Herald columnist Brian Rudman stirred me into action this afternoon with the upcoming decision on what to do with Auckland's stadium situation. On the one hand, as Brian points out, the decision is easy if you subscribe to the efficiency-of-use argument. The three big stadiums in Auckland (Eden Park, North Harbour Stadium and Mt Smart Stadium) all depend on local government to a greater or lesser degree. Indeed, the issues paper released by Regional Facilities Auckland (RFA) in June (linked here) indicates that Eden Park breaks even each year and has a large debt to service of $55m post-Rugby World Cup, Mt Smart is facing an upgrade bill of some $60m and requires local government funding each year, and North Harbour Stadium is very much dependent on local government funding to stay viable. There appears to be an argument, on the surface, that there are potential efficiencies to be gained by rationalising their use (the 'collaborative strategies' option presented by RFA). On the other hand, however, there is a sense of uncertainty as to how feasible a rationalisation plan like this is. There are questions to be answered over how such a rationalisation might affect support for certain sports within Auckland - for instance rugby league - if they have to move from Mt Smart to Eden Park. Will Eden Park residents be happy with greater utilisation of the Park? Granted, the $250m upgrade for the Rugby World Cup had a lot of people asking whether it was worth the price tag for the present utilisation of the facility. Clearly RFA thinks that the extent of investment in the infrastructure for and around Eden Park means greater utilisation is necessary. Interestingly enough, the proposal put forward by RFA suggests that Eden Park be used for 'bigger' rugby league events (that is, over 20,000 supporters). The Warriors haven't averaged more than 20,000 in attendance since 1996. The sole game played at Eden Park in the 2012 season against Manly in the opening weekend brought 37,502 through the turnstiles. The Warriors have actually played twice at Eden Park, for an average of 37,957. Two games isn't a great sample upon which to make any predictions, in any case, but the reliability of that number of spectators regularly attending Eden Park games is somewhat questionable. Under RFA's second option (specialisation of functions), Eden Park would be the major stadium with Mt Smart and North Harbour Stadium smaller-scale backups (rather as they are now). RFA also proposes Mt Smart taking on speedway (moving from Western Springs). Mt Smart and North Harbour might also be developed into high performance centres for various sports. The issue of rationalisation of sporting facilities has been experienced in Melbourne in recent years, with many AFL clubs moving games from traditional (and often smaller capacity) suburban grounds to large inner-city facilities including the Melbourne Cricket Ground and Etihad Stadium, along with AAMI Park. NRL clubs have also raised the idea that more games be played in larger facilities like ANZ Stadium and Allianz Stadium at the expense of smaller suburban grounds. Melbourne hosts some 18 professional sports franchises in its vicinity, and does work at coordinating the use of its major facilities. Sydney, too, has seen several NRL clubs in particular move from their traditional homes to the larger ANZ Stadium, which has meant greater utilisation of the major facilities across both cities. Melbourne and Sydney have dedicated major sports precincts which are the focus of much of the major sport within each city (Melbourne, for instance, has Hisense Arena and the Rod Laver Arena in close proximity to the MCG and AAMI Park, while Sydney has its Olympic precinct at Homebush which includes the ANZ Stadium). Auckland does not have such a precinct, and as such, a continuation of ad hoc development appears likely in the absence of some coordination. It should also be pointed out, in the case of Melbourne and Sydney, that most of the clubs that play their home games in the large sports precinct facilities still train\at their home ground, which have effectively become smaller scale suburban sport-specific high performance centres. They are not as expensive to maintain, as the onus is largely on the clubs themselves to provide the necessary infrastructure and equipment. Many of these facilities also serve as local community sporting facilities, so have an element of public good about them. In the short term, it seems prudent for Auckland to look for ways to leverage the investment from the RWC. Sydney leveraged it's Olympic investment as part of the 2003 RWC, and continues to do so. Melbourne leverages its Olympic and Commonwealth Games investment with the AFL, the NRL, Super Rugby, the Australian Open, etc. The decision is an important one and will determine whether, in future, we see an Auckland sports precinct along the lines of Melbourne or Sydney.

Limits of monopoly Bill Sep 26

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The Kim Dotcom saga is a great illustration of the interdependence of legal and economic systems. To summarise:
  • some people had a legal monopoly
  • it was not a natural monopoly
  • technological change made it simple to subvert the legal monopoly
  • which Dotcom allegedly did
  • so the owners of the legal right summoned the authorities
  • who used illegal means to enforce the legal right.
We can argue about whether the granting of legal monopolies for creative products is utility-enhancing. There are good arguments on both sides. What is clear is that the monopoly needs legal definition and protection. It doesn’t exist outside the legal system that produces it. In addition, technological development changes the cost of monopoly, or, more correctly, the cost of enforcing the monopoly. Any noob who can point and click can copy digital music and video. Copying cassette tapes required more time, cost more, and had less reach. Pressing albums? Making wax cylinders? A bit more specialised still. Regardless of the cost, the owners had legal rights and correctly expected to exercise those rights. They asked the legal system to enforce the rights they had acquired. Up to this point, it is a banal story of copying. Yawn. Yet another copyright infringement, with colourful characters and big numbers. And made a little sexier because the internet is involved*. Then comes the interesting part: in order to enforce the right, the authorities feel they have to go outside the law. That suggests that the monopoly right given under the law is very fragile under current technology. Which in turns suggests we may be reaching the limit of this type of monopoly. It is not natural; now it may be becoming untenable. Exactly what will replace it is uncertain. Either a weakening of the monopoly right or a strengthening of the enforcement regime is possible. A widening gap between de facto and de jure is also possible. If nothing else, Dotcom has shown us that change is inevitable. - *It has seemed to me for years that ‘on the internet’ has served as an ooga-booga. Compare:
  • ‘Con artists prey on elderly’ vs ‘Con artists prey on elderly on the internet’
  • ‘Teenage boys view sexy photos’ vs ‘Teenage boys view sexy photos on the internet’
  • ‘My cat did this cute thing yesterday’ vs ‘My cat did this cute thing yesterday on the internet’.
See what I mean?

What are the implications for New Zealand universities? Paul Walker Sep 25

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Over at the Organisations and Markets blog Peter Klein asks Does Strong Alumni Participation Make US Universities Stronger? He writes,
What explains the dominance of the US in elite higher education? Shailendra Mehta offers a novel explanation: the role of alumni. Graduates of US colleges and universities tend to identify strongly with their institutions and care deeply about their school’s reputation and ranking. Only in the US do alumni play such a strong role, not only in financial support (often connected with athletics), but governance.
[N]o group cares more about a university’s prestige than its alumni, who gain or lose esteem as their alma mater’s ranking rises or falls.

Indeed, alumni have the most incentive to donate generously, and to manage the university effectively. Given their intimate knowledge of the university, alumni are also the most effective leaders. Through alumni networks, board members can acquire information quickly and act upon it without delay.

All great universities are nonprofit organizations, created to administer higher education, which benefits society as a whole. But US universities found a way to integrate competition’s benefits into the European concept of nonprofit, or so-called eleemosynary, corporations. The lack of profit does not diminish an alumni-dominated board’s incentive to compete for prestige by, for example, hiring distinguished faculty, accepting meritorious students, and striving for athletic or artistic achievement.
If the Mehta idea is right then should we strength the role that the alumni plays in the governance of New Zealand's universities? Alumni have advantages as major players in university governance. 1) they have an interest in the success of the university and in maintaining its reputation. If the uni's reputation falls so does the value of being a graduate from that uni. 2) they have knowledge about the university and its workings. In areas where expertise is a major component of producing the final product, an inherent knowledge of the area is a positive in terms of getting better organisational outcomes. Alumni can have such knowledge of their institutions.

Of course another group with much the same two attributes are the current academic staff of the university. And what we see in terms of governance is involvement of both groups but should the alumni have greater say?

Cartoon: How to find out if someone is an economist Matt Nolan Sep 25

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The always awesome Saturday Morning Breakfast Cereal (SMBC) popped this comic up.

The thing is, when I saw the first panel the first question that popped into my mind was “nominal or real dollars” – the amount I ask that, all day long, is ridiculous.  These things are always best when they are relatively true …

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