jamesz

Taking unilateral action

/2 Comments/in , , /by

When it comes to climate change the biggest argument against unilateral action is the lack of any tangible benefit. What can a single country really do to mitigate climate change? However, an article by Akira Yakita suggests that there are welfare benefits to action outside of the benefits to the climate.

His central argument is that preferences are not stationary and can be influenced by publicly expressed attitudes. So, if the government subsidises green technologies as part of its climate change policy, then people’s preferences shift towards green products. Because the subsidy increases the production of green products, which are now preferred, total welfare might increase. Obviously the final welfare outcome depends on the coefficients on each effect, but Yakita shows that an increase in welfare is possible.

While that’s all well and good in theory it’d be nice to have some evidence of the effect. After all, it could get awfully close to saying that anything the government does is good because people will grow to love it. Yakita’s evidence for the effect comes from two industries. First, he points to the explosion of interest in hybrid cars, where sales growth has been huge despite the 50% price premium they command. Sales of hybrids in Japan have grown by 19%pa from ’98 to ’06, while the overall growth in car sales is ~1%pa.

Secondly he points to sales of organic food. While there may be dispute over whether organic foods are actually environmentally friendly, there is no doubt about how they are generally perceived. He reports that the organic food market has grown 15%pa over the last decade as the environmental movement has taken hold.

Those two pieces of evidence together do suggest that preference shifts have taken place. However, it’s a bit of a jump from there to suggesting that government action can instigate a preference shift. I’m willing to believe that preference shifts could make it worthwhile for the government to promote green activities to boost welfare, but I’d suggest the causation has to run from preference shift to government action rather than the other way around. Nonetheless it’s a novel way to look at the benefits of unilateral action on climate change.

jamesz

Differential funding for uni departments

/6 Comments/in /by

Peter Mandelson wants to revamp British universities to make them more inclusive and have them focus more on job-relevant courses. Proponents of liberal arts schools are predictably outraged. I agree with them that they shouldn’t be discriminated against. A fair system would make people pay for the benefit they receive from their education, and have the government subsidise to the value of any positive externalities from education.

To draw an analogy to university staff pay, the quality of university staff depends in part upon the difference between their university salary and their outside options. As Daniel Hamermesh puts it:

If a university went ahead and paid equally, lowering economists’ pay and raising French professors’ pay, it would have a great French staff and a dreadful bunch of economists.

Of course, Hamermesh is talking from the perspective of a US academic. In the US they pay different salaries for different disciplines. In NZ we do pay all university staff equally and the research bears out the truth of Hamermesh’s conjecture. So paying people with different market values equally is essentially a subsidy on those with low market value.

To come back to the issue of students’ fees, subsidising all students equally is a subsidy on students whose degrees have only private value. Surely, in order to be fair to all departments and all students, the subsidy on education should pay for only the social benefit. The entire private benefit to the student should be paid for by the student. At the very least the subsidy should be proportionate to the social benefit and differ across disciplines.

So who would be the winners and who would be the losers? Speculate away!

Matt Nolan

More on drug policy

/in /by

Stumbling and Mumbling discusses the seemingly strange fact that public opinion is so heavily against the legalisation of drugs that pose a lower social cost than some already legal drugs.

Now the legalisation of drugs is an issue we have discussed at length here ( ).  Now if society is fully informed of the costs and benefits of drug use, then I am happy for policy to be instituted along these lines, since many drugs actually help health and make people feel better like cannabis drugs and other products, you can get online, which you can buy here and you won’t be disappointed on the quality of these products.

This does raise an interesting question for me though.  Why do countries with a closer tie to Britain (Britain, the US, NZ, Australia) seem to push an agenda of strong drug regulations when a number of other nations (the Netherlands, Portugal) tend to be more interested in allowing individual action to guide the use of these products?

What makes Anglo-Saxon countries so much more sure of their ability to centrally determine what is the best set of actions for their citizens?  What makes Anglo-Saxon governments so sure of their superiority relative to the people they are “serving”?

Matt Nolan

Legalise drugs?

/11 Comments/in , , /by

That appears to be the suggestion of David Grimmond from Infometrics according to this article (also found here).

How do I feel about this suggestion, well I agree.  Legalise it, that way we can apply standard quality controls, pump out education and information, and place externality taxes on it.

Worst case scenario:  The externality tax makes the drug so expensive that the current gang based supply of drugs (with an associated motive to avoid tax) remains the cheapest option for people – in this case the legalisation makes no real difference.  However, I would still only support bans above taxation here if it turned out that bans were arbitrarily cheaper – as other social outcomes would be the same.

There is nothing wrong with someone making a choice to take drugs when they understand the issues surrounding them.  Legalisation helps us create a situation where people can make well informed decisions regarding drug use.

Furthermore, there is nothing wrong with an individual taking the drug persee – although we may be concerned about how their actions following any use impact on other people.  In this case legalisation, education, and a bunch of taxation will do the trick – the current situation does not target these external activities very well at all.

Matt Nolan

Exchange rates and adjustment: What does it mean?

/1 Comment/in , , , /by

With the mass of recent discussion on the exchange rate and the “structure” of the economy (here, here, here, and here) it seems like a good time to discuss exactly how the exchange rate matters insofar as discussing the economy.  Luckily for us, Paul Krugman has already done an excellent job of this.

Read more

Matt Nolan

Why do we want to subsidise agriculture again?

/13 Comments/in , , /by

It sounds to me like there is some interest in NZ sbusidising its agricultural industries again (eg here and here).

Now, people may be scratching their head even after looking at those links trying to figure out what I’m talking about here.  No-one used the word subsidise after all and NZ has strong cross-party support for free trade.

But excluding agriculture from the ETS is subsidising the industry.  Why?  New Zealand has taken on a liability based on the carbon it produces.  By not charging the carbon producers on this basis the rest of the country is effectively subsidising the agricultural industry – we are being protectionist.

The counter claim is that “other countries aren’t applying charges to their agricultural industries”.  This is the same as saying “other countries are being protectionist and as a result so should we”.

This isn’t the attitude we had in the 80’s when we wanted to lead the world in terms of free trade – why do we have that attitude now?