Why specialist vape retailers may tend to locate in more socially deprived areas

When I first started studying the social impacts of alcohol outlets, one of the things my research team and I were interested in was where alcohol outlets located. We found (see here) that off-licence outlets tended to locate in areas of high deprivation in Manukau City. I've since replicated that analysis a couple of times in unpublished work, for both South Auckland and Hamilton.

I was interested to see that this new article by Robin van der Sanden (Massey University) and co-authors, published in the New Zealand Medical Journal (sorry, no ungated version online, but you can sign up for open access for free), finds very similar results for specialist vape retailers (which are defined here). They used Google Maps and Google Street View data to locate all of the specialist vape retailers across 14 Auckland suburbs, then categorised them into three types: (1) upmarket; (2) budget; and (3) 'store-within-a-store' (which are located inside or attached to convenience stores, petrol stations or liquor stores. The main results in terms of the relationship between store numbers and social deprivation are shown in Figure 1 from the paper:

This figure shows the median number of specialist vape retailers (in total and by type) by social deprivation. In their sample, stores tend to be more likely to be located in the most deprived two deciles (9-10), and least likely to be in the least deprived two deciles (1-2). Aside from that, I wouldn't draw too much from the analysis here. Because these are median counts per suburb group (not per capita or per land area), differences could reflect population size, commercial zoning, or land area rather than ‘density’. So if high deprivation suburbs also tend to have higher populations, or to be larger in area, then the apparent relationship between social deprivation and the number of specialist vape retailers is confounded. However, at the highest level there does seem to be some tendency. Van der Sanden et al. worry about this, concluding that:

The concentration of SVRs in high-deprivation suburbs in Auckland may warrant further regulatory responses that better balance the needs of predominately adults to access vaping products as a means to stop smoking with limiting vape products to young people who have never smoked...

However, Van der Sanden et al. don't really explore why specialist vape retailers may locate in areas of high deprivation. I've done quite a bit of exploration and thinking on this in relation to off-licence alcohol outlets, and I suspect that the reasons might be similar. And it doesn't require retailers to be 'targeting' high deprivation communities in some predatory business strategy. I have a few hypothesised reasons for more specialist vape retailers in more socially deprived areas can be explained with some simple economics.

First, if a prospective retailer is looking to run a retail store that maximises profits, one of the aspects that they must consider is the costs of operating the business. Ceteris paribus (all else held constant), a store with lower costs will be more profitable. Areas of high deprivation tend to have lower commercial rents, and are therefore less costly to operate, and will generate higher profits from the same revenue.

The second hypothesis is a little more complex, and involves a bit of economic geography. Each store may have a particular 'catchment area', which is the area from which its customers come to the store. In a low deprivation area, where everyone owns a car, and often commutes a fair distance for work, the catchment area for a store might be quite large. So, stores that are located close together will be in direct competition for consumers, since their 'catchment areas' will substantially overlap. In contrast, in a high deprivation area, fewer people might own cars, or they may not run reliably, or they may only be able to afford to drive them to and from work without long side-quests to buy vapes. So, the 'catchment area' for a store will be much smaller, and stores can be located closer together without being in direct competition for consumers. And so, we might expect to see more vape stores in areas of high deprivation than in areas of low deprivation, because the retailers are trying to minimise competition with other stores (although they may then need to balance a smaller catchment, which has less spending power, against the costs of operating the store).

Finally, the differences may reflect differences in demand. If vaping rates are higher in more socially deprived areas, then demand for vaping products may also be higher in those areas, and attract more vape retailers. I don't really know whether there is a social gradient in vaping, although the New Zealand Health Survey suggests that there is, with more vaping among people living in areas in the most socially deprived quintile. Of course, there is a potential reverse causation problem with the demand-side explanation, because more specialist vape retailers located in socially deprived areas might drive more vaping in those areas.

None of that is to say that having more specialist vape retailers in more socially deprived areas is a desirable outcome (especially if they do indeed drive more vaping). Van der Sanden's proposed policy response may be appropriate. However, the situation we observe could be explained by some simple economics. So if policymakers want to reduce retail availability of vaping products, they can focus on practical levers (licensing, zoning, proximity rules) without relying on arguments about predatory business practices, or vilifying store owners (both of which I have seen in the case of alcohol retailers).

This week in research #115

Here's what caught my eye in research over the past week (another slow week):

• Mortágua gets deep into the theoretical weeds on the question of whether crypto-assets are money
• Carpenter et al. (with ungated earlier version here) use 2021 Canadian Census data to look at earnings disparities experienced by nonbinary people, and find that nonbinary individuals assigned male at birth, transgender men, transgender women, and cisgender women all earn significantly less than comparable cisgender men

Also new from the Waikato working papers series:

• Valera, Lubangco, and Holmes propose a new measure of revisions to consumer inflation expectations that uses repeated cross-sections rather than panel data, and show that individual inflation expectations are sensitive to price changes across 14 food and energy goods

Tuition fees, incentives, and 'ghost students'

When the New Zealand government introduced 'first-year fees free' in 2018, the universities expected a big uptick in student numbers. It didn't happen (as I discussed in this 2023 post). As the figure below (source) shows, the mild downward trend in domestic student numbers (equivalent full-time students, or EFTS) continued for at least a couple of years past 2018:

My colleagues were worried that we would see an increase in the number of students who enrol, and then do nothing at all (what we call 'ghost students'). My impression was that this didn't happen, but until now I never looked intentionally at the numbers. However, the figure below shows the proportion of each of my A Trimester ECON100 classes (up to 2017) or ECONS101 classes (for 2018 onwards) that were ghost students (I didn't teach the class in 2022, which is why there is no observation for that year). Here, I define a 'ghost student' as any student who didn't attempt any of the tests or exams (although they may have attended some classes during the trimester). In each trimester, the class had between 250-350 enrolments in total. [*]

As the figure shows, there was a big jump in 'ghost students' in 2021, but that is attributable to the COVID pandemic and the weirdness of that whole time period, rather than anything to do with fees-free. In most years, somewhere between three and five percent of students are 'ghosts'. In 2025, the government shifted from first-year fees free to final-year fees free. There's no evidence that change affected the proportion of 'ghost students' either. Or it's too early to tell - the proportion in 2025 was lower than either of the previous two years.

Why might we expect the changes in fees to affect the number of 'ghost students'? It comes down to incentives. As my ECONS101 students will hear next week, when the cost of something decreases, we tend to do more of it. First-year fees free decreased the cost of being a 'ghost student', so ceteris paribus (holding all else constant), we would expect to see more 'ghost students'. Final-year fees free (with first-year fees reintroduced) increased the cost of being a 'ghost student', so ceteris paribus, we would expect to see fewer 'ghost students'. The fact that didn't happen is interesting, and we'll come back to that a bit later.

To see why the New Zealand effect might be negligible, it helps to compare with a setting where student status comes with larger immediate benefits. To do that, I want to discuss this recent article by Johannes Berens (RH Köln), Leandro Henao, and Kerstin Schneider (both University of Wuppertal), published in the journal Labour Economics (ungated earlier version here). They look at the impact of the removal of tuition fees in North Rhine-Westphalia in Germany in 2011. Tuition fees were a very modest EUR500 per year (for every year of study), and Berens et al. essentially compare students who were more or less affected by the policy (depending on how many years they didn't have to pay fees for), looking at a range of academic outcomes including exam registrations and withdrawals, credit points earned, grades, and dropout probabilities, as well as the number of 'ghost students'.

Their data come from a single university, with over 11,000 students who first enrolled between 2008 and 2011. The students in the 2008 cohort would have graduated before the fees were removed, while those in the 2011 cohort would not have faced any fees at all. The other cohorts would have had fees in their later year/s, but not earlier year/s. Applying a difference-in-differences approach, Berens et al. find that:

...abolishing tuition fees significantly affected student behavior and academic outcomes. Active students reduced their academic performance by 1.7 credit points per semester (12 % relative to baseline), despite maintaining similar exam registration patterns... Additionally, the reform increased the prevalence of ghost students by 10 percentage points...

So, removing fees in this context substantially increased the proportion of 'ghost students' by 10 percentage points, from a baseline that was already over 10 percent (Berens et al. present the data by study semester, and the 'ghost student' proportion varies between 10 percent and 20-25 percent, depending on year and study semester).

What explains the high impact of removing fees in Germany? Berens et al. highlight the role of incentives, and in particular the generous nature of public assistance available to students. Specifically:

...student status confers substantial benefits, generally independent of academic performance... These benefits include subsidized health insurance (until age 25), state-wide public transport access (worth EUR 2900 annually), and parental child allowance (EUR 2450 annually). About 16 % of students also receive need-based grants averaging EUR 6800 annually...

So, being classified as a student can be quite lucrative in Germany, even if the student is a 'ghost'. That might also explain the lack of effect of first-year fees free in New Zealand. While the fees are higher in New Zealand than in Germany, being a student in New Zealand is hardly a pathway to great riches (at least, not during the time spent as a student - see this post, and the links at the end of it). The student allowance is not very generous, and while there are some other perks to being a student, cheap movie tickets and public transport are not exactly worth a lot of money. So, it shouldn't be much surprise that the impact in Germany was much larger than for a similar policy change in New Zealand.

Another reason that the impact was not apparent in New Zealand could be that many students do not pay their tuition fees immediately. Instead, many (perhaps most) students' tuition fees are paid by student loans. 'Student Greg' is probably quite content to say that the student loan is 'Graduated Greg's' problem, and not worry about it today. So, from the perspective of 'Student Greg', first-year fees free doesn't really impact the decision to become a student or not. It doesn't change the costs of being a student for 'Student Greg', because they don't consider paying back the student loan as part of the costs of studying today. [**] And that might explain why there was no incentive effect of first-year fees free in New Zealand (also, fees-free papers are not free if students fail them, as I noted in this 2023 post).

The incentives in Germany and New Zealand, when the tuition fees were changes, resulted in quite different impacts. In Germany, where the benefits of being a student were higher, lower costs of being a 'ghost student' induced many people to enrol, whereas in New Zealand, where the benefits of being a student are lower, and the costs of tuition are typically deferred to the future, lower costs of being a 'ghost student' appear to have made no difference.

The nature of incentives, and the costs and benefits around the decision, definitely matter. The policy takeaway from this is that tinkering with fees alone may induce more (or less) 'ghost students', so the other immediate benefits and costs associated with student status also need to be considered. 

*****

[*] The data are for only one paper, but ECON100 and ECONS101 have been, for the most part, compulsory papers for business students. In a couple of years, some students could avoid the paper by taking all of the other first-year business papers. However, unless 'ghost student' status was more likely for students who did not take first-year economics, these results should be broadly representative.

[**] Essentially, 'Student Greg' is heavily discounting the future. In my ECONS102 class, we say that 'Student Greg' exhibits present bias, and is therefore only quasi-rational, not purely rational. Of course, not all students will have acted like 'Student Greg', but if enough of them did, that would explain the lack of incentive effects of the changes in first-year fees.

Book review: Economics (Ben Mathew)

I just finished reading Ben Mathew's 2013 book, imaginatively titled Economics. The subtitle is more descriptive though: "The remarkable story of how the economy works". The subtitle is also an accurate statement, as how the economy works does make for a remarkable story. Unfortunately, Mathew only provides a narrow (and biased) part of the story.

Don't get me wrong. This book is beautifully written, and will be easy for most non-economists to follow. I really enjoyed large parts of it. It is also quite humorous in parts. Consider this bit, which is both quite true and quite funny:

A Scottish philosopher by the name of Adam Smith figured out the answer and wrote it down in a book called An Inquiry into the Nature and Causes of the Wealth of Nations. The massive tome was published in 1776 and invented modern economics. All economists have a copy on their shelf, and some have even read parts of it.

Guilty as charged: I have a copy of The Wealth of Nations in my bookshelves, and I have even read parts of it (but not the whole book).

What lets this book down is the single-minded market fundamentalist approach. This book is everything that critics of 'neoliberal economics' love to hate. Mathew puts capitalism, the market, and prices at the centre of the 'remarkable story', which is sensible. However, he bats away or ignores critical problems with markets, such as externalities, information asymmetries, and monopoly or market power. Public goods do get a mention, but not until the last five pages of the book. Aside from public goods, the only market failures that are discussed are those caused by government intervention: price controls and taxes.

This uneven treatment isn't going to convince many readers, and those who area already skeptical of markets and economists will have cause to double-down on their skepticism. The market fundamental approach is understandable coming from Mathew, who was trained at the University of Chicago, the epicentre of 'price theory'. However, given how wonderfully Mathew writes, I feel like this was a real missed opportunity to have a book that truly describes the remarkable story of how the economy works, not based on a market-centred idealist view, but in all of its messy glory. Perhaps readers should read this book alongside Michael Sandel's What Money Can't Buy (which I reviewed here), and take the average of the two?