dant03

Water – is there a role for demand management at the household level?

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Lately, water shortages, and in particular rural droughts, have been in the news. While the farmers in many regions certainly are suffering, and there are definitely enough meaty economic issues around farmers’ current water allocations and associated issues, I want to concentrate on economic issues around water use by (mainly urban) households, and what role demand management should play.

For the most part, New Zealand has heaps of water. Yet in Wellington, where I live (for instance) sprinkler usage is currently rationed, and there is talk of an all out sprinkler ban if a big downpour doesn’t happen soon (the recent trickles are only holding things off for a while). That is because the main sources of drinking water in the region – the water catchment area in the rimutukas (near Wainui), the Hutt River near Kaitoke, and the Aquifers under the Hutt Valley, are all at about the limit of what they can give without incurring major damage, due to the recent low water flows.
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jamesz

Should the disabled pay their own way?

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A blind couple are outraged that they got charged extra at a hotel when their dogs allegedly moutled all over the place and required extra cleaning work to be done. There appears to be some dispute over exactly what happened, and the manager of the hotel is clearly a PR disaster area, but is it fair that the couple should have been charged extra if it cost the hotel more to accommodate them?

Well, ordinarily, it makes sense to charge more when the cost of providing a service increases; however, it seems unfair to penalise those who are already disadvantaged through no fault of their own. Yet requiring hotels to house them and imposing the cost on the hotel owners also seems unfair: why should the hotel owners pay the entire cost of accommodating a few individuals’ disabilities? Since most people would like to see services provided for disabled people, yet few people are willing to individually pay for them, the obvious solution is to spread the cost over everyone. Read more

Matt Nolan

Externalities: A bridge too far

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CPW sent me a link to the following blog post on Econlog. In the post Bryan Caplan mentions an economist from Princeton (Roland Benabou), who argues that externalities provide a bridge between an economists conception of the world, and non-economists concepts. Although this may be a tad over the top (as non-economists place more value in normative statements than economists would ideally), I believe this is an important point insofar as it allows us to generalise our models, to take into account more possible states of the world.

Bryan Caplan puts forward four points of difference that he believes will still exist between economists and non-economists, however I think they were a touch over-cooked, here’s why:
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Matt Nolan

Cigarette cases: Are they ‘too tempting’

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More research out of Massey has recommended increasing government regulation. In this case, researchers found that the display case for cigarettes makes them too tempting for those trying to quit and for rebellious teenagers. As it is election year, politicians are interested in this ‘issue’ and are thinking about tightening the regulation surrounding these cigarette cases.

Externality taxes and regulation are two of our favorite topics on this blog (see here, here, here, and here), and as a result we have to talk about it.

In order to start to analyse this problem, I’m going to use one of our old posts on porn and manipulation.
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jamesz

Revealed preferences in prostitution

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The stereotypical customer of prostitutes is a seedy, desperate old man in a trenchcoat. I have tended to think (without any empirical evidence, I hasten to add) that it’s more likely to be a stereotype based on prejudice rather than experience or observations. After all, not many people have the opportunity to observe a representative cross-section of brothel clients. However, today’s article on Stuff reporting that many prostitutes are being displaced by under-age sex workers was very disturbing.

Of course, it is terrible when children are pressed into such occupations and our first reaction is shock that it happens at all. What I find almost more worrying though is that there is demand for their services. Economists use the theory of revealed preference to analyse these choices. The idea is that a person looking for a prostitute has the option of engaging either an under-age worker or a legal worker. If they choose to engage the inderage worker in those circumstances then it indicates that they prefer sex with an under-age girl. Given that they could be charged with a serious crime if caught, the cost of an underage prostitute is significantly higher than the cost of engaging a legal prostitute. This suggests a strong preference for under-age sex among those men who choose to use the services of under-age workers.

If Stuff is correct that workers over the age of 18 are being displaced, it suggests that many men who seek to prostitutes’ services are not just seedy but have a tendency to prefer under-aged sex. So maybe the stereotype isn’t harsh enough!?

Will Taylor

Kiwisaver and Income Equality: Must not have checked my mailbox…..

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David Farrar links to a Herald article on a report that came out of Waikato University’s management school saying that Kiwisaver is going to increase income inequality.

Their policy analysis that rich people will restructure their activities to get tax benefits in a way that poor people cannot seams relatively sensible. I don’t claim to know anything about the the tax implications of Kiwisaver so I’m willing to trust them on that. This isn’t the only way that rich people can take advantage of the tax system in NZ. Last time I checked to top personal tax rate in NZ was much higher than the company tax rate, and businesses get gst back which gives people the incentive to structure as much under their company as they can. Incentives are king, this kind of behavior is nothing new.

What does bother me about this article is that they conclude that Kiwisaver has not “inspired new saving but rather a “reshuffling” of existing savings” based upon 598 completed mail surveys they sent out. Read more