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Archive October 2012

Leadership, the economic critique Bill Oct 31

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One of the keys to economic thinking is models. We are always simplifying the world into models of cause, effect, and interaction. Economists try to do this explicitly, to write down the inputs (causes), outputs (effects), and equations (interactions) in a way that clearly explains our mental models. Then, they ex-sist in a way that allows us to play with them openly and consistently.

When we are analysing a particular phenomenon, the choice of model is very important. In this, the third of four reviews of The Leadership Challenge, by James Kouzes and Barry Posner, I’m suggesting a few different economic models and trying to figure out what they mean for leadership. [EC note: here are the first and second reviews]

One model is the $20 bill on the footpath. It’s an old economics joke. An economics professor and a graduate student are walking down the street. The graduate student says, ‘Hey, there’s a $20 bill on the footpath.’ The professor replies, ‘No, there’s not. If there were, someone would already have picked it up!’

Another model is a standard production model, in which factors of production are combined to produce outputs. In addition to land, labour, and capital, we can add other factors like entrepreneurship, managerial capability, and leadership. We can imagine two scenarios: both have the same physical inputs, but one has high leadership and the other low leadership.

The second model suggests that, yes, we can produce more. We can be more productive and more efficient. This is essentially what The Leadership Challenge is offering. With low leadership, employees are not engaged and are not contributing to the full extent that they could. With high leadership, they can be encouraged to work harder and smarter, to present new and better ideas, to do more.

This is where the first model comes in: if there are these $20 bills lying around that can be ‘found’ by reading this book, we would expect that they would have already been found.

The likely explanation is that leadership is hard. Learning about and practising good leadership takes time and effort. Adding more leadership to your production function isn’t costless and its success is uncertain. If a business wants to produce more, it may be better off adding more machines or workers, rather than worrying about the uncertain pay-off from leadership training. It is safer to depend on mediocre leadership.

There is an interesting wrinkle, though. From the firm’s perspective, it may be safer to assume mediocre leadership. However, the individual’s perspective is different. An individual can become richer by increasing human capital, in this case, leadership abilities. Furthermore, self-help books are efficient from the firm’s perspective. The firm doesn’t have to select people, spend resources training them, and then discover that it has only a 20% success rate (or whatever). Instead, individuals self-select as those who are willing to spend time improving their leadership, bear the costs, bear the uncertainty of success, and then potentially reap the benefits of improving their own human capital. The firm provides the environment in which individuals could improve their fitness by improving their leadership, but allows variation and selection to do the work of identifying those superior organisms.

You will have noticed that I have slipped into a third model, that of evolution.

A further observation: the low price and wide distribution of pop-management books is further evidence of the difficulties with leadership. Here, I take up a fourth model: expected value. Let us assume that the gains to good leadership are as great as suggested. That is the potential payoff. Expected value is the potential payoff multiplied by the probability that it will happen:

EV = probability * payoff.

If I as an individual invest in buying and reading a book, I am investing according to the EV of the self-improvement project. A $40 to $50 book and a few hours of my time reading is a relatively low investment. If the payoff is huge — tens of thousands of dollars to me, personally, and thousands or potentially millions to the firm — the the probability of success must be quite small. Just to throw in some numbers:

$500 per year = probability * $10,000 per year probability = 5%.

There you have it, four economic models for thinking about leadership: $20 bills, production function, evolution, and expected value. They all suggest that leadership is hard and uncertain. I don’t think Kouzes and Posner would disagree. The difference is that their book cheers, ‘You can do it!’ My models mumble, ‘Well, no, you probably can’t.’

In praise of price gouging, revisited Eric Crampton Oct 31

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There are no laws against price gouging in New Zealand. Nevertheless, there really wasn't very much of it when it really really was needed - after the Christchurch earthquakes.

With the New York hurricane, price gouging is again making the rounds of the Econ blogosphere. Michael Giberson summarises things. Jeff Ely has concocted a scenario in which he thinks gouging worsens outcomes. I'm going to disagree with specific reference to the Christchurch experience.

Ely argues that we can have cases where supply is effectively fixed. Consequently, the only gains we get via gouging are in ensuring that goods are allocated to their highest valued use; we don't get increased supply. In that case, we weigh the gains from improved allocation against the losses to inframarginal consumers who have to pay more. Now, Ely's effectively ignoring producer surplus; he says producer surplus should only count when it can bring forth more supply. The better argument would simply specify that producers have lower marginal utility of income so the transfer is utility decreasing. I don't see why we otherwise would want to say that consumer surplus is so much better than producer surplus.

But, the Ely scenario really doesn't fit hurricanes. You get tons of prior warning for hurricanes and the opportunity to price gouge can bring in plenty of new supply. Not like an earthquake. And so let's go back to the Christchurch earthquakes.

After the February 2011 earthquake, we were in a zero-supply-elasticity world for a few goods, most notably petrol. More petrol was coming, but it wasn't going to be here for a few days. All of the petrol stations on the east side of town were out of commission due to power outages; it was very hard to figure out where you'd be able to find a petrol station with power if you lived in the east. Worse, because everyone knew that petrol was scarce, everyone panicked. If you had a car with half a tank, you filled it up. If you had two cars, you made sure both tanks were full. If you had empty jerry-cans, you filled those up too. A student this year told me that he was working as a security guard at one of the petrol stations after the quake. People were filling up barrels with petrol to keep in the garage. Eventually, the station started enforcing some rationing.

What radio reports we could get in the east noted very long petrol queues at the working stations in the west, with some selling out. We were in South Brighton, no power, a quarter tank of fuel [getting home post-quake took 5 freaking hours in traffic], and absolutely no clue whether our quarter tank would be enough to get us to a working station on the west side of town when we bugged out for a house with working sewerage, water and power.

EVERYBODY KNEW THAT PETROL WOULD BE BACK IN A FEW DAYS.

There were no laws against price gouging. But the petrol stations knew that every single customer would hate them if they were the only station to let prices rise such that supply and demand came back into equilibrium. And so because the stations didn't gouge, we were in a terrible equilibrium where everyone's rational response to the below-clearing price was to hoard, because there was real risk that the stations would run out of fuel. And there was real risk of running out of fuel because of the hoarding. Breaking the hoarding equilibrium would have required a coordinated price hike that both allocated fuel to its highest valued uses and told everyone that there would be fuel available for them in an emergency if they really really needed it. That latter part is crucial - it kills the incentive to hoard.

I take the Roth stuff on stupidity constraints seriously - we can't assume those away.* Any station doing the right thing would have taken a reputation hit that outweighed the private benefits to the station because customers are resentful idiots who do not understand how prices work. If the stations had gotten together to coordinate it, there would have been massive pressure for Commerce Commission action. The second-best alternative, given consumers who are idiots about price gouging, would have been a temporary very large hike in the petrol tax for Christchurch, with money raised being dedicated to earthquake relief. This, I think, is the right response when supply is perfectly inelastic and stupidity constraints bind. I argued for it as soon as I was again able to blog post-quake.** It should be a standing contingency plan for similar emergencies.

If there are big worries about hardship on poorer communities from the price increases, get a helicopter, get a bag of money, and drop the money over the poorer communities while letting prices rise. A better option, if stupidity constraints of another form didn't bind, would be to give everybody an emergency debit card pre-loaded with $200 that would only activate if a state of emergency were declared. But there's awfully strong odds that the folks who'd most need them would lose them or sell them prior to the emergency.

I really think Ely is underestimating just how much value there can be in getting to the right allocative solution, and how a good dose of gouging can break hoarding equilibria.

* He calls it "repugnant markets", where people view some kinds of transactions as being repugnant. When those kinds of preferences prevent efficient trades, I call them stupidity constraints. Semantics.

** Other posts on price-gouging summarised here.

Drink-driving kids Eric Crampton Oct 31

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The blood alcohol limit in New Zealand for those under 20 is 0%. For those over 20, it's 0.08.

It's worth keeping that in mind when you read stories giving the youth and adult arrest numbers:
The Group and traffic officers on Friday and Saturday had checkpoints around Tauranga, Mt Maunganui and Papamoa.
Of the 22 drink drivers caught at the weekend only two were under the age of 20.
''This is an encouraging sign that our youth are now in a position to set a benchmark for the rest of the community".
Ten percent of drivers nailed being youths seems high relative to their proportion of the driving population, but the standard varies across cohorts.

Overall, youth arrest rates for drink driving are substantially down. The reporter here seems to have gotten it, even if the sub-editor went for the inaccurate but eye-grabbing headline "Teens turn blind eye to drink-driving". From the story:
The number of teenagers arrested for drink-driving has halved almost a year after the zero alcohol limit was brought in for under-20s. Police figures show that in the first nine months since the law came into force on August 7 last year, 3091 youths aged 15 to 19 were arrested for drink-driving. The figure for the 12 months before the law change was 6414.
Previously, the drink driving limit for youths under 20 was 0.03. Here's the relevant section from the Land Transport Act 1998. Prior to the law change, consumption of alcohol in the 0.03 to 0.08 range drew a maximum term of 3 months or a fine of up to $2250 and a 3-month license suspension. Those consuming over 0.08, as I understand things, could draw the standard adult range of penalties: maximum jail term of up to 3 months, a fine of up to $4500, and driving disqualification for at least 6 months. The 2011 law change added an infringement offence for consumption in the 0 to 0.03 range: a fine and 50 demerit points.

A prior news story citing the same police figures gave a few more details:
The average numbers of those charged for having 30mg or more had dropped by about 43 per cent since the law change - from two charges per day to 1.1.On average, the numbers of arrests for youth drivers falling within the ‘‘new range’’ of alcohol restrictions dropped from about 18 charges before the law was introduced to 12.6 since.
I'm a bit confused by the stats on the 'new range'; I didn't think you could be arrested for being in the 0-0.03 range prior to the law change.

So:

  1. Drink driving arrest numbers are not commensurable pre- and post- the law change; if behaviour had not changed, we would expect arrest rates among youths to have increased substantially.
  2. That youth arrest rates dropped says that the bright line rule deterred behaviour.

I would be awfully curious to know more about the actual BAC for those charged before and after the law change.

The best argument for reducing the adult drink driving limit from 0.08 to 0.05 isn't the reduction in accidents among the cohort of drivers who test in the 0.05 to 0.08 range - that's almost certain to be trivially small relative to their representation among the cohort of drivers who were not involved in accidents.* Rather, it's that many people may intend on having only a couple of drinks but, after having gotten to 0.06, decide to have a few more drinks. Since they hadn't planned on getting drunk, they didn't plan on a ride home. And so they may wind up driving home drunk. A lower drink driving limit's benefit might then be in reducing the likelihood of transitioning to heavier drinking when driving home.

The change to the 0% threshold did nothing to affect the penalties faced by 19 year olds (compared to, say, 23 year olds) for consuming amounts of alcohol over the 0.08 threshold for more severe penalties. But it might have affect their likelihood of making plans to have a designated driver or to drink at all. If a substantial proportion of the reduction in under-20s drink-driving arrests comes from reduced numbers of youths consuming past the 0.08 limit (relative to the trend for 23 year olds), then we put more weight on the potential for a 0.05 adult limit to reduce adults' likelihood of driving with BAC > 0.08. If not, then we downweight that potential.

In either case, full cost-benefit analysis would need to weigh benefits from accident reductions against reduced consumption benefits to those who would not have gone on to impose increased accident risk on others: many adults, me included, would substantially curtail consumption to guard against the risk of accidentally going over 0.05 even if the vast majority of the time we never exceeded 0.04. It is a mistake to note that most adults' typical consumption would keep them below 0.05 and that consequently moderate drinkers benefits from moderate consumption would not change. Think of it this way: if we had the death penalty for going over 105 kph if the speed limit were 100, and the police said this shouldn't matter because most people drive the speed limit anyway, it would be a bit nuts. It's easy to accidentally hit 105 even when you're trying hard to stay at 100. It's harder to hit 112 by accident. So the death penalty for driving 105 would likely have most folks stick to 90, just to be safe. Same with a drink driving limit of 0.05: risk-averse people would target 0.03 or below just to be safe. The loss in consumption benefits would be real, and we'd better be sure that the reduction in accident rates is then worth it.

And so I wonder if the Police is collecting data on actual BAC among those breath-tested, and whether time series data on that sorted by age is anywhere available.

Disclaimer for SciBlogs: My disclosures around alcohol are here. I'm really going to need to get a sidebar sticky for this; it's irritating having to note it at the bottom of every post.
* And this, boys and girls, is why the police's emphasis on testing the BAC of those involved in accidents to see what portion fell in the 0.05 to 0.08 range by itself really doesn't help us a ton in deciding whether to cut the limit to 0.05. If 10% of drivers on the road from 8 pm to 4 am would test at .05 to .08, then they'd have to show up in more than 10% of accidents during that time of day to be over-represented. Unless we combine that accident data with data from random police checkpoints to get time-of-day population baselines, we just won't know whether they're over, under, or proportionately represented. 

Gareth Morgan on Housing Affordability Seamus Hogan Oct 30

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Gareth Morgan takes aim here at the Productivity Commission, for emphasising land supply as the major determinant of the high cost of housing in New Zealand. He notes that
[t]here are cities in the world with five times Auckland's population, living in an area no larger than Auckland's, and with housing prices lower as a percentage of income than in New Zealand.
Gareth, in contrast, points the finger at the Reserve Bank for directing banks to emphasise mortgage lending (for prudential reasons), and the tax code for favouring housing. He says that as a result of this "toxic duo" we have
driven the price of housing from twice the average household income to six times.
He restates his call for a capital tax (not a capital gains tax) to remove a distortion in favour of housing. Now, as I wrote here, I think that a capital tax has some really horrible properties that would swamp any benefits, but this is secondary to why I don't agree with this analysis of the NZ housing market.

First, explanations don't have to be either-or. Even if we agree that there are problems in New Zealand capital markets that contribute to house inflation, surely it would be the case that those problems are going to be more acute the lower is the elasticity of supply of land for housing?

Second, one of Gareth's concerns about the tax advantage given to housing is that it encourages people to buy housing as a path to prosperity, which presumably means that it is based on expected capital gain. Now this either means that house prices have been pushed up by a bubble, which will eventually burst without any change in the tax system, or that the fundamental price of housing is rising, and speculation is just bringing those price increases forward. If that is the case, then removing any favourable tax treatment on the capital gains from home ownership might cause a one-time drop in house prices now, but a faster increase in those prices in the future.

Third, Gareth's other concern about the favourable tax treatment given to housing--and the one that motivates Gareth's call for a capital tax--is the familiar fact that the implicit income earned from selling housing services to oneself in owner-occupied housing is not subject to income tax (although the transaction is implicitly subject to GST). This distortion will indeed cause the demand for housing to be higher than it otherwise would have been. But it will not cause the after-tax price of housing services to be higher, so again, it is hard to see how removing the tax distortion would be a solution to the problem the Productivity Commission are addressing.

Finally, if looking to the tax code to explain the change in house prices over time, or differences between countries in the fraction of income devoted to housing, one needs to identify time-series or cross-section differences in the tax code. Pretty much all countries have a tax code that favours owner-occupied housing and always have done. If anything, we have moved the tax code away from favouring housing in recent years with changes in the treatment of investment properties, and a switch from income tax to a higher rate of GST. And we don't have policies like the mortgage interest rate deduction that are seen in other countries, particularly the U.S.

Ultimately, it just comes down to ECON 100 supply and demand. The New Zealand population has been rising, and land-use policies have been preventing supply from keeping up with demand. Maybe those policies are a good thing, and we should be moving away from urban sprawl to high-density living. But it is hard to counter that the cost of such policies will be a steady increase in the price per square metre of housing.

Academic centrefolds Eric Crampton Oct 30

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Public Choice has to get in touch with Randall Munroe right now. They need to get a licence to reproduce this as a centrefold in the next available issue.


DW-Nominate tracks Congressional ideology [and here] back to the start. What a beautiful way of illustrating it.

SciBlogs explainer: DW-Nominate is probably the best existing measure of congressional ideology. Poole and Rosenthal started by rank ordering members of Congress from left to right based on roll-call votes; they then used Congressmen whose tenure spanned several Congresses to make the scales comparable over time. Wikipedia's explanation isn't bad. If you're looking for ideology scores over a shorter time horizon, the ADA's measure isn't bad. My favourite application of the latter: Groseclose & Milyo's use of Congressional ADA scores to impute ideological scores to US think tanks [based on how often different Congressmen cite them], and from there to impute an ideological score to media outlets [based on how often they cite the different think tanks].

More on partial privatisation Paul Walker Oct 29

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From Homepaddock comes this interchange from Parliament's questions and answers time for October-24.
Michael Woodhouse: Why is it important that the share offer programme goes ahead?

Rt Hon JOHN KEY: It is important, firstly, because the Government can use the proceeds of the share offer to invest in new public infrastructure without having to borrow so much to do so. This is exactly the same situation as in 2005 when the previous Government took $600 million from the sale of publicly owned asset Southern Hydro and used it to invest in roads. The share offer also gives New Zealand savers the opportunity to invest either directly or indirectly in big New Zealand companies, and being publicly listed will be good for the companies themselves.

I do believe bringing these companies to the market through the mixed-ownership model is a good, sound economic approach, and actually I think it will deliver a better result for New Zealand without having to borrow more money. . .
I have noted a number of times that I don't agree with the argeement used here by the PM. In the past I have said
First, selling only 49% of the shares in the companies is unlikely to make an difference to the way the SOEs are run. In particular the sell off will not make the firms anymore efficient since the government will still be the controlling shareholder.

Second, if the government really does want to maximise the income it gets from the sales selling 49% is not a good idea. 51% is worth a lot more than 49%, that is people will pay a premium for control.

Third, selling to "Mums and Dads" will do nothing for the amount of money raised, since Mums and Dads will need a discount to make them buy shares.

Fourth, selling to "Mums and Dads" will do nothing for the efficiency effect of having private owners, since there will be too many "Mums and Dads" for them to be able to coordinate their effects to effect the firm's behaviour.

Fifth, given that each "Mum or Dad" will own only a very small share of any of the firms, they have little incentive to become informed on the firm's activities since they will only capture a very small amount of any improvement in performance they could bring about. This is another reason why performance is unlikely to change.

Sixth, the discipline of bankruptcy or takeover is not greater since the government is still the controlling shareholder and is unlikely to let either of these options happen.
If the government is really worried about the proceeds of the sale of share it should take note of points 2 and 3 above. Points 1, 4 5 and 6 are relevant for the effects of the sale on the "companies themselves". And why do we care about giving
"New Zealand savers the opportunity to invest either directly or indirectly in big New Zealand companies".
Where New Zealanders invest is surely up to them and not something the government should be interfering with.

Less government borrowing is good but if the government sold 100% of the SOEs even less borrowing would be needed. And you would get better outcomes for the firms.

Economist Irrationality Eric Crampton Oct 28

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Boy is S.M. at The Economist's "Democracy in America" blog having to engage in contortions to defend the rationality of voting.

Launching off from Katherine Mangu-Ward's really excellent summary of the case against voting, S.M. invokes Gelman's argument that large N elections both reduce the probability of decisiveness and increase the potential benefits from winning.
The mathematics are convoluted, but the message is simple: even with a one in 10m chance of casting the decisive vote, the stakes are high. In fact, the lower the odds are of influencing the vote, the higher the stakes. This is because everything scales linearly and more people will bear the brunt—or enjoy the benefits—of a country led by candidate X rather than candidate Y. So your vote in Ohio, Wisconsin or another tipping-point state is worth $60,000 to your fellow citizens. That’s a pretty good return on the investment of the hour or so it takes to vote.
Except that the very fact of your decisiveness in the election proves that half of all voters disagree about whether you're making the world a better or a worse place! You can only be decisive by making or breaking a tie. That happens when half the voters think you're rather wrong. And, unless you are in an epistemically privileged situation relative to other voters (and why would you think you are!), you can't know whether you're on the right side or the wrong side. Gelman's a great statistician, but I've never liked his argument here.

Worse, S.M. pulls a pretty shonky Kantian move.
This misses the point of the Kantian argument for voting. The idea is not that one person’s decision to forgo voting would crash the system—how would that possibly happen?—but that it is immoral to act on a maxim that we cannot imagine everyone else acting on. So if I consider adopting Ms Mangu-Ward’s proposed maxim—I will abstain from voting because the costs of voting outweigh the benefits—I will first need to see if the maxim passes a test implicit in Kant’s categorical imperative. I ought not act in accordance with the maxim if it fails the test.

So let’s see: can I universalise the non-voting maxim? Can I imagine living in a world in which every eligible voter opts for a nap or a game of Temple Run in lieu of going to the polls? No. The logic of American democracy does not support such a universalised principle. No one votes, no one is elected, a moment of constitutional failure brings an emergency convention in which unelected delegates draft a new constitution calling for an alternate system of specifying leaders that doesn’t involve the public. The franchise, and America as we know it, disappears. Since the logic of the system cannot be sustained were everyone to adopt the nap-over-voting maxim, I am morally bound not to act on it.
Here's the universalisable version. Two weeks before the election, flip a coin. If it comes up heads, flip it again. If it comes up heads, flip it again. If it comes up heads a third time (a 12.5% chance), study hard about the policy options, decide which candidate is best, and then go vote. If everybody does that, there's a non-trivial chance of being decisive (maybe we'd need four heads in a row to be more sure) and so you've an instrumental reason to get out and vote - and to vote more sensibly. At current levels of turnout, it's clear that everybody else is failing to play the universalisable Kantian "vote at low probability" rule, so a good rule of thumb is then "Don't vote unless turnout looks low enough; if turnout is low, run the coin flips."

The simplest and most plausible way of squaring voting with rationality is simply to recognize that people like doing it for its own sake. We don't try to come up with stories about how onanism increases reproductive fitness; it's done for its own sake. Same with voting. Unfortunately, that breaks most of the normative desirability of median voter outcomes.

Labelling and non-tariff barriers Eric Crampton Oct 26

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David Farrar asks why we shouldn't mandate nutritional labelling on alcoholic beverages. People may well forget that alcohol has caloric content; providing information has value.

Here's the case against them.

First, it is fairly easy for large producers of homogeneous products to add nutritional labels to their products. The one-off testing and label re-jigging is a fixed cost that is spread across a very large number of units. But, suppose you're a craft brewer and you get a notion to make a seasonal autumnal ale with pumpkin in it. It'll taste good and sell well as a small batch. But after you make a batch, you're going to have to send a bottle to the lab for testing, wait for the results, and attach the appropriate nutritional label to your new brew. This will add maybe a fortnight or more to your brewing cycle on the first batch of the product and cost you a bit in testing. You can't spread those costs over many units because you're not making many units. And heaven help you if you decide you should double the pumpkin in the next batch.

Second, it's a non-tariff barrier against imported products made in countries that do not have labelling requirements. When New Zealand implemented labelling requirements for standard drinks a few years ago, the shop where I bought my oddball foreign grey market craft beers had to print off little labels for each bottle of the one-offs that they sold, converting the percent alcohol content into a number of standard drinks. This added to the cost of foreign craft beer relative to domestic or mass market product.

You will rightly note that this is also an argument against mandatory nutritional labelling requirements on any small volume products.

If there's any steam behind nutritional labelling requirements, there are things we can do to make it less awful.

The easiest labelling requirement would only require that producers give a general range of calories contained per serving of the product based on the alcohol content alone. A gram of alcohol has seven calories, so a standard drink contains 70 calories. Most products could then simply say something like:
"One serving of this product provides 50-100 calories through its alcohol content."
If you really want to know the protein, carbohydrate, sugar and salt content for the drinks, carve out an exemption for small-batch products and for imported products. 

SciBlogs disclaimer: my disclosures around alcohol funding are here. I really love the oddball small-batch beers that turn up in New Zealand, whether made domestically or imported. Anything that adds fixed costs helps to kill that product range. New Zealand has enough problems with fixed costs without inventing more of them.

RWC 2011: a small tourism win Sam Richardson Oct 26

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This just out from stuff.co.nz - the tourism sector had a small win from the Rugby World Cup:
Despite the brief boost from the Rugby World Cup last year, total tourism spending rose just 2.4 per cent to $23.4 billion in the year to March 31, according to Statistics New Zealand figures.

The Tourism Satellite Account shows international tourism spending rose only 1.6 per cent, or by $149 million in the March year. That was slightly down on the growth of 1.8 per cent in the year to March 31, 2011, before the Rugby World Cup.

Before you spot the problem here, it is also noted that:
"Growth in overseas visitor arrivals of 4.4 per cent, largely driven by the 2011 Rugby World Cup, contributed to this small increase in international expenditure," satellites account manager Peter Gardiner said. But the boost from the rugby was offset by the impact of the Christchurch earthquake early last year, which put off many foreign visitors to the South Island.

Now, to the problem. The 2011-12 March year experienced a slowing of expenditure growth compared to the 2010-2011 March year. As quoted from the article above, any gains from RWC 2011 appear to have been offset by a reduction in tourism spending from the Christchurch earthquake. Nonetheless, it is interesting that the gain in spending was $149 million for the entire year. I'm pretty sure the Reserve Bank projected the gain in spending from the RWC at around $700 million in August 2011 (and that was with only 95,000 visitors - the event attracted 133,200 visitors). The MED determined earlier this year (February 2012) that the actual international visitor spend from the RWC was in the order of $390 million.
 
The $149 million mentioned above is growth from the 2010-2011 March year. Last year was a year in which not only the Christchurch earthquake featured but we also saw the continuation of the world financial crisis and recession continue to buffet overseas economies and therefore impact upon tourism in this country. This leads me to a more specific question - what would have happened in the absence of the RWC? Would we have had no growth, or even a reduction in tourism spending from the previous year? It is a question that is almost impossible to know the answer to given that the economic impacts of earthquakes are unlikely to be standard across countries, so correcting for it is nigh on impossible.
 
In any case, we should be asking whether the injection in spending attributable to the RWC was truly beneficial to our economy. On the surface, it appears that it may well have been (in that it appears to have translated into an increase in foreign tourism spending in this country). Did spending attributable to the RWC actually offset not only the earthquake and the financial crisis but also the possible losses of regular tourism? These are complex questions to answer, but not impossible. It is a matter of untangling the effects as best as one can. Was it worth it? Well, public opinion was in favour after the All Blacks triumphed.
 
As an aside: A colleague and I are looking at this general question and evaluating the realised impact of the RWC 2011 on host cities in New Zealand. Interestingly, provisional results suggest that the aggregated figure is somewhere in the ballpark of $120 million (working paper link will be posted up in a future blog post once it is ready).  

Texting while driving Eric Crampton Oct 25

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Texting while driving is dangerous and increases your chance of accidents. Bans on texting while driving seem to increase accident rates.

The Insurance Institute for Highway Safety says that 3 of every 4 states that have enacted a ban on texting while driving have seen crashes actually go up rather than down.
It's hard to pin down exactly why this is the case, but experts believe it is a result of people trying to avoid getting caught in states with stiff penalties. Folks trying to keep their phones out of view will often hold the phone much lower, below the wheel perhaps, in order to keep it out of view. That means the driver's eyes are looking down and away from the road.

So, here's a potential difference-in-difference study in this, the "thinking about honours projects for next year" time of year.

New Zealand banned texting while driving a few years ago. If we can get data on age-by-age participation in texting (presumably more prevalent among young people than among older people), we'd expect that the ban would have no effect on older cohorts' rates of single-vehicle accidents, that accident rates among youths will depend on the elasticity of texting risk-taking with respect to the law (could go either way - if the number of texting kids drops enough to offset the increased risk-taking by those still texting, accident rates drop; otherwise, they increase), and that multivehicle accident rates will change proportionately to the types of drivers involved (no change to multivehicle accidents where elderly drivers smash into each other, other cross-effects depend on the elasticity found in the single-vehicle accident rates).

Data we need:
  • Age-by-age texting participation rates (don't know if any proxy exists)
  • Age-by-age accident rates  (near certain this exists)
  • Accidents broken down by ages of all drivers involved and single- or multi-vehicle status
  • Checking whether other age-specific interventions coincided with the texting law change:
    • The zero-alcohol limit for young drivers (which itself would make for a great diff-in-diff study not only on accident rates but also on crime rates)
    • The 'Crusher Collins' crackdown on 'boy racers'
Hints on data warmly accepted.

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