Wednesday, 7 October 2015

Flag Cycles

I guess we'll never know whether the flag referendum has chosen the right flag. Why? Elections NZ cannot tell us.

Let's step back. Recall that the preferential ballot that will be used would provide us all the data we need to choose a Condorcet winner, if there is one. The Condorcet winner is the flag that would beat all other flags in a head-to-head match-up. So if my preferred flag, monkey-butt, would beat each of the fern designs and the red peak design in a head-to-head match, monkey-butt would be the Condorcet winner.

It's dead simple to check for a Condorcet winner in the preferential ballot. For each of the pairings, you pretend that all the other options don't exist and see how many voters say A beats B and how many say B beats A. If a majority of voters rank A higher than B in their preference ordering, regardless of how they rank them relative to all the other options, then A beats B. You do that across all the potential options. If some flag would beat each other option, that's the right flag.

Unfortunately, a preferential ballot with sequential elimination of options that receive the fewest first choices can sometimes choose the wrong option. Suppose some flag is everybody's strong second choice but the first choice of few voters. It could be quickly eliminated from the preferential ballot. It isn't necessary that a Condorcet winner exists, or that a preferential elimination would fail to choose an existing Condorcet winner, but it is definitely possible and it is definitely easily avoided. How? Before running the preference ballot, check to see if any option beats all the others and declare it the winner if so.

Even more unfortunately, we'll never know whether we've chosen the wrong flag. The Electoral Commission replied to my request as follows:
Dear Mr Crampton, Thank you for your e-mail of 24 September 2015 regarding the results of the first flag referendum and a request to provide the number of votes that conform to each of the potential preference orderings and publish the aggregates.

Section 38(1)(a) of the New Zealand Flag Referendums Act 2015 (‘the Act’), provides that in the case of the first flag referendum, once all the voting papers have been processed, the Returning Officer must:
(i)     calculate the number of first preference votes received for each option; and(ii)    count the votes in the manner described in Schedule 4; and
(iii)   declare the result of the referendum by giving public notice of the following:(A)     the absolute majority of votes determined at the first iteration; and(B)     the number of first preference votes received for each option; and(C)     the absolute majority of votes determined at each iteration at which an option was successful or excluded; and(D)     the number of votes recorded for each option and the number of transferable votes at each iteration at which an option was excluded; and(E)     the iteration number at which each option was excluded, where applicable; and(F)     the number of informal voting papers; and(G)     the outcome of the referendum; and 

The results will be published on the Electoral Commission's website: in accordance with these requirements.  The preliminary results will be released after 7pm on 11 December 2015 and the final result after midday on 15 December 2015.

Unfortunately, the Electoral Commission is unable to provide the additional result information that you would like because it is not permitted under the legislation.
 Yours sincerely

I wonder if it's too late to get an emergency change to the referendum legislation. 

Tuesday, 6 October 2015

Markets for rules

Oliver and I had a minor disagreement in last week's Insights newsletter.

He argued that the Volkswagen case was terrible and that everybody should follow the rules.*

I said that regulators and car companies have been playing cat and mouse with each other on this stuff for ages, that customers would put in workarounds if the emissions controls denigrated performance too much anyway, and that civilisation would collapse if everybody followed all the government rules all the time.

That's especially true when government sets rules to be seen to be doing something rather than because they think the rules are a good idea. You occasionally hear stories around the traps of governments doing things that they hope get overturned by the courts on appeal, so that they can have their cake and eat it too: politicians get kudos from voters for having done something feel-good and dumb, but suffer none of the economic consequences of bad regulation because some grown-up elsewhere in the system bats it back.

Are there alternatives?

The latest Cato Unbound has an excellent contribution from my old classmate Ed Stringham. He points out that government is neither the only nor the best source for rules. In fact, for a couple of centuries, governments tried to ban stock markets as being sinful gambling. So traders set up and enforced their own rules despite government trying to ban their doing so and despite government refusing to enforce contracts. And it's hardly an isolated case.

Here's Ed:
In all of the world’s first major stock markets, government officials considered much of the trading as a form of gambling or speculation used to manipulate prices. In the first stock market in seventeenth century Amsterdam, government refused to enforce all but the simplest securities contracts. After the founding of the Dutch East India Company in 1602 a secondary market for shares emerged among brokers who began specializing in trading stocks. Officials soon passed edicts outlawing their nascent market, but stockbrokers continued trading and developed many sophisticated transactions including forward contracts, short sales, and options. How is that possible? Instead of formal rules, stockbrokers relied on reciprocity and reputation mechanisms to encourage contractual compliance. In contrast to the one shot prisoners’ dilemma story, most business is repeated and brokers had to be reliable if they wanted others to do business with them. Not only would a defaulter sour his relationship with his trading partner, but he would be boycotted by everyone else who found out. Reputation thus served as a substitute to formal rules. The market was wildly successful and helped finance the Dutch Golden Age. Some estimates put the market capitalization of the Dutch East India Company in current dollars at $7 trillion. Modern New Yorkers can thank the Dutch East India Company for financing Henry Hudson’s first voyage to New York’s North River (the Hudson River) and the Dutch West India Company for founding New Amsterdam (New York).[4]

...Other financial intermediaries also assume and manage risks on behalf of customers. When doing business with PayPal or with most credit cards, if fraudsters make bogus transactions or attempt to takes money out of an account PayPal is on the hook. By 2001 fraudsters were stealing more $10 million from PayPal per month at a time when its gross annual revenue per year was only $14 million. At first PayPal contacted the FBI and found that it was of little help. After seeing the evidence, the FBI asked questions such as “What’s a banner ad?” These government officials were not at the forefront of technology, but even if they were, they still would have been powerless against anonymous fraudsters on the other side of the globe. Rather than sitting around and hoping that government would solve the problems, PayPal came up with private solutions to deal with fraud before it occurred. They developed human-assisted artificial intelligence to monitor accounts, search for suspicious activity, and temporarily or permanently suspend accounts. By assuming and managing risks on behalf of customers, PayPal transformed what many people assume must be legal questions into risk management questions. When parties can deal with problems ex ante, ex post contract enforcement is not the “necessity” that theorists like Kirzner or Olson assume.

* Hic-A-Doo-La means obeying all the rules!

Wage gaps and part-time work

I had a look at the latest numbers over at The Initiative's blog:
Last week’s New Zealand Income Survey sure led to a lot of headlines. Here are some of them:
One simple change could almost halve measured pay inequality. What is it? Have women replicate men’s split between full-time and part-time work. Ok, maybe that’s not so simple. But while there are 7.05 full time male workers for every part-time male worker, there are 1.96 full time female workers for every part-time female workers. And part-timers always earn less than full-timers. Interestingly enough, part-time female workers earn more than part-time male workers – for the obvious reason given those numbers.
If you re-weighted the pay gap using women’s median earnings for full-time and part-time work, but men’s split between full-time and part-time work, the pay gap would drop from 11.9% to 6.6%. And that’s without controlling for a pile of other important stuff, like time spent outside of the workforce or differences in education background and the like.
How is this different from last year? Last year’s wage gap was 9.8%. In the 2014 NZIS, there were 6.65 full time male workers for every part-timer and 2.02 full-time female workers for every part-timer. So the proportion of male workers in full time positions increased while the proportion of women in full-time positions decreased. The absolute number of part-time male workers dropped; the number of part-time female workers increased.
How big is the effect? It looks like the change in the relative proportions of part time and full time workers accounts for about a fifth of the increase in the wage gap from 2014 to 2015. The rest looks due to a much stronger increase in male full-time earnings than in female full-time earnings – though part-time male earnings have stagnated while part-time female earnings grew.
Meanwhile, the Herald is blaming "bro culture" for that women take longer to pay off student loans than men.
The latest Education Ministry report on the student loan scheme says male students who graduated in 2011 will pay off their loans in an average of 6.7 years, but women will take a further six months.

The gap is far smaller than 2005, before student loans were made interest-free.

In 2005, men would take an average of 14 years and women 28 years to pay off their debts.
Hmm. Any guesses about something that might happen for at least some women in the first 5-10 years after college graduation that would mean an income-contingent loan repayment scheme might take longer for women than for men? Any?

And recall that student loans here don't accrue interest if the debtor stays in New Zealand. If the numbers above are right, then inflation eats far more of female graduates' debt burden than it does for males. Think about it this way. If you owe a big pile of money on which zero interest is accruing, would you prefer to be able to pay it off really quickly or have it deducted from your estate on your deathbed? The longer the term of a zero-interest loan, the better for the borrower!

Update: Brennan McDonald points out that student loan balances are written off when the government sees your death certificate.

Monday, 5 October 2015

Obesity and Income

If we're tallying the social costs of obesity, what should we make of this one?
Obese men make more money than their slimmer counterparts, according to new research from the University of Otago's Christchurch Health and Development Study (CHDS).

The opposite can be said for women, with obese or overweight women earning less than women of average weight.

They were also more likely to be depressed and dissatisfied with their lives, while an obese man's mental health was generally unaffected by his girth.

The study analysed the relationship between a person's size, using their Body Mass Index (BMI), and financial aspects of their lives such as net weekly income, savings, household income. They also examined depression levels and life satisfaction.

On average, men with a BMI of more than 30 – the classification for obesity – earn $140 a week more than men with a normal BMI. Obese women earn $60 less than a woman with a "normal" BMI rating.

...The study has followed the lives of more than 1200 Canterbury children in intimate detail for 38 years. ... They decided to examine the CHDS cohort at age 30 and 35 to try and identify a link in New Zealanders.

The study found being overweight or obese was associated with poorer outcomes, but only in women, Horwood said.

"There was a clear relationship between larger men and larger weekly pay packets. But for men, being classified as overweight or obese according to the BMI Index did not negatively affect other outcomes measured in the study such as self-esteem or mental health," he said.
I've been unable to find the study referred to. The reporter says it is available in the Social Psychiatry journal, but I've been unable to find it on either the International Journal of Social Psychiatry's website, or on the "Social Psychiatry and Psychiatric Epidemiology" site. And I've not been able to find any journal that's just called Social Psychiatry. Not for the first time, I wish online news articles included links to cited studies.

Bigger picture, wage effects of consumption behaviour shouldn't count as any kind of external cost. They're effects born by the person undertaking the consumption and, potentially, others with whom that person is linked through a contractual nexus. If someone is less productive and he's paid less, does it matter whether it's due to drinking, obesity, or wanting to flip to part time to spend more time playing video games, or wanting to flip to part time to spend more time with the kids?

Life of Brian

The NZ Film Classification Office today pointed to its amusing 1980 correspondence around Monty Python's Life of Brian - an excellent film that I saw when I was maybe 14 years old.

Here's the Office:
Monty Python's Life of Brian (1979, R16)

The classification of the 1979 film Life of Brian was hotly debated both in New Zealand and overseas. Christian groups in New Zealand called for the film to be banned before the it had arrived in New Zealand. Chief Censor of Films Bernard Tunnicliffe received more letters about Life of Brian than any other film submitted for classification at that time. Life of Brian was classified according to criteria set out in the Cinematograph Films Act 1976 and on 18 February 1980 was classified as restricted to those aged 16 years and over (R16). Many correspondents who had requested a ban on the film were upset with the R16 classification.

A petition was launched in July 1980 requesting that the Minister of Internal Affairs withdraw the film from public release. While the petition gathered 12,352 signatures it was unsuccessful in convincing the Minister to stop the exhibition of the film. There were also members of the public who supported the R16 classification of Life of Brian. One parent wrote to the Chief Censor telling him that they initially thought that the film should be classified lower than R16 because they thought that their 12 year old daughter would have enjoyed most of it, however they "commend(ed) (his) refusal to ban it and the rating (he) awarded it". Another letter to a newspaper editor from Monty Python fans in Lower Hutt pointed out that they were "…distressed by the number of Christians that object to the film and believe that…if the film upsets them, they shouldn't go and see it…Life of Brian is purely meant for enjoyment and the only one restriction should be made only — those with a sense of humour need go".
Archives New Zealand pointed to some of the correspondence around it too. Silly religious people wanting to ban the film.

Film Censor's Office Correspondence - Monty Python's Flying Circus What's less funny is that that 1980's ruling still stands. Because Christians were powerful enough, in 1980, to ensure that the film received an R16, and because it hasn't been re-classified, the ruling still stands. And now that you know that it is R16, the maximum fine is $10,000 and you could go to jail for up to three months. Section 126.

Regardless of the censor, I'll likely show the film to the kids when they're in their early teens.

The Classification Office notes that anybody can submit a film for reconsideration. I'm not going to. Monty Python specialised in sending up the absurd; the film's current rating is an absurdity highlighting the rather substantial deficiencies of the system.

Friday, 2 October 2015

Marsden Maths

Motu's released the working paper they'd presented at the NZAE meetings earlier this year. They show that Marsden grants do increase research output. But as for whether the programme is cost effective? Well, that's more fun.

The average researcher on teams receiving Marsden grants made 6 proposals and received 1.2 grants over the period 2000-2012. The Fund allocated just under $68 million in 2013; the standard grant's maximum budget is $300,000 per year while Fast Start grants are limited to $100,000 per year. Panels reject 71-84% of first round proposals. The Motu analysis looks at second round proposals, 41% of which were funded.

Results? Here's the big headline chart from their press release.

So about the biggest effect that they found was that a researcher who received two successful research grants received a 10% increase in publications and a 14% increase in citations. In the regression discontinuity design, comparing project teams whose proposals just made the cut with those that just didn't, they found no effect.

Their abstract's version:
Overall, we find that funding is associated with a 6-15% increase in publications and a 22-26% increase in citation-weighted papers for research teams. For individuals, funding is associated with a 3-5% increase in annual publications, and a 5-8% increase in citation-weighted papers for 5 years after grant; however, the lag structure and persistence of this effect post-grant is difficult to pin down. Surprisingly, we find no systematic evidence that the evaluation of proposals by the Marsden system is predictive of subsequent success. We conclude that the Marsden Fund is modestly successful in increasing scientific performance, but that the selection process does not appear to be effective in discriminating among second-round proposals in terms of their likely success.
An annual 8% increase in the number of citation-weighted papers for five years after a grant might amount to one full paper over the entire time period. A research grant costing upwards of a hundred thousand dollars per year seems a pretty costly way of generating one citation-weighted paper.

It would be ... interesting ... to compare the cost-effectiveness of Marsden with an alternative scenario in which academics who maintained a reasonable publication record received an unconditional grant and the money spent on Marsden-related administration went instead into hiring more academics. There have to be at least 30 full-time equivalent academic-years that go into Marsden grant writing and grant evaluation.

Income confusion

Today's NZ Income Survey numbers have me perplexed. I've emailed asking them what's up, but here's my puzzle. Maybe one of you can help me out.

I keep median and average weekly earnings from salaries and wages floating around in my head because they're important touchstone figures that everybody working in policy should know. They give you a sense of proportion for things. The number I had floating around in my head for average weekly earnings from salaries and wages among salary and wage earners was $991. And that is the correct 2014 figure. Median was $863.

This year's release has a population rebasing taking into account the 2013 Census and they urge that current figures not be compared to prior ones because they've rebased things. Ok, fair enough.

This year's release has median weekly income from salaries and wages at $882, which is up $19 from last year. Last year's median figure was $863, so whatever's going on in the rebasing didn't affect the median figures. $863 + $19 = $882. A 2.2% increase.

The headline figures didn't include averages though, and they usually do. For those, you have to drill over to Tab 5 of the spreadsheet. Average wage and salary income for those in paid employment was $891. And they do not provide a rebased figure for 2014.

Whatever happened in the rebasing didn't affect median earnings at all, but knocked average earnings down by over ten percent. Average earnings didn't drop: all the hourly rates and such are increasing, and the average earnings from salary and wages across the entire population (not just those in employment) is up, but they don't give the version of average earnings that would allow a straight comparison of averages among those in paid employment.

I'm probably missing something obvious. But I just don't buy that there's only a $9 difference between median and average weekly earnings. If there is, well, even I've been massively overestimating the amount of inequality in New Zealand - and I've been complaining about other folks overstating it.

Update: StatsNZ replies:
"Regarding to your query, median weekly income from wages and salaries for those receiving income from this source was at $882 in the June 2015 quarter, compared with $863 in the June 2014 quarter.
The average was at $1,021 in the June 2015 quarter (which can be found in the supplementary table 4), compared with $993 in the June 2014 quarter.
The figures above are calculated based on wage and salary earners only.
 However, figures in table 5 are calculated based on the people earning income from either wages and salaries or self-employment, or both.
As the population is different, the average of $891 is different, compared with $1,021 mentioned before.
 Hope this could help answer your question."
So it's the relatively low earnings of those reporting self-employment that drag down the Table 5 averages.