Could prosecuting STI transmission increase infections?

In my ECONS102 class this week, we covered unintended consequences - where an incentive is created that works against what was originally intended. One of my favourite examples is the familiar (but possibly apocryphal) story about cobras in Delhi, as I noted in this 2015 post:

The government was concerned about the number of snakes running wild (er... slithering wild) in the streets of Delhi. So, they struck on a plan to rid the city of snakes. By paying a bounty for every cobra killed, the ordinary people would kill the cobras and the rampant snakes would be less of a problem. And so it proved. Except, some enterprising locals realised that it was pretty dangerous to catch and kill wild cobras, and a lot safer and more profitable to simply breed their own cobras and kill their more docile ones to claim the bounty. Naturally, the government eventually became aware of this practice, and stopped paying the bounty. The local cobra breeders, now without a reason to keep their cobras, released them. Which made the problem of wild cobras even worse.

Just because the consequences of a policy are unintended, that doesn't necessarily mean that they are unforeseen. Sometimes, we can anticipate what will go wrong with a particular policy. And it's not just policies that can go wrong. Any change in costs or benefits that alters people’s incentives can produce unintended consequences. As an example, consider this recent article in The Conversation by Bridget Haire and David Carter (both University of New South Wales):

In an Australian first, a Canberra man has been convicted for giving genital herpes to a sexual partner...

This recent case represents a significant expansion of criminal law into sexual health. It sets an unhelpful legal precedent, and undermines successful public health messages.

Decades of research have concluded that prosecuting disease transmission doesn’t reduce infection and may make things worse...

But criminalising transmission can create perverse incentives not to seek medical care and treatment. If a person genuinely doesn’t know their status, it can be more difficult to prove “reckless” transmission.

The intuitive case for punishment is especially strong in this case: the man knew his status, denied having an STI when directly asked, and repeatedly had unprotected sex with his partner. However, the punishment itself will change incentives for other people.

Ideally, we want people to know their STI status. For curable STIs, diagnosis enables treatment. For example, for infections such as herpes, it allows people to use medication and other precautions that reduce the risk of further transmission.

At one level, it makes sense to punish people who knowingly infect others with an STI. That creates a strong disincentive to transmit STIs to other people. However, criminalising STI transmission also reduces the incentive to get tested, because a person not knowing that they are infected might be able to use their lack of knowledge of their infection status as a defence in a criminal case. So, we might expect that fewer people would get tested for STIs. So, on the one hand there are disincentives to transmit STIs, but on the other hand there are disincentives to find out whether you are infected with an STI, which leads to move STI transmission. If the latter effect is larger, then overall there could be higher prevalence of STIs and greater incidence of new infections.

And so, rather than reducing STI infections, criminalising those who transmit STIs may have the unintended consequence of increasing STI infections overall.

People's offsetting behaviour thwarts well-intentioned interventions in social media and smartphone use

People lead complicated lives. They have many competing goals, and have to trade off between those goals. Economists assume that they choose their actions with the overall aim of maximising their utility (satisfaction, or happiness). However, the many competing goals can sometimes thwart well-intentioned interventions. For example, when seatbelts were made compulsory, that made driving faster safer to do, and people responded by driving faster, and therefore less safely (for related examples, see here and here). Economists refer to that as offsetting behaviour.

Two recent examples of this arose in research papers I read this week. The first is this NBER Working Paper by Hunt Allcott (Stanford University) and a long list of co-authors, who investigated the impact of people temporarily deactivating Facebook or Instagram on their emotional state. Working with Meta (where some of the co-authors work), they:

...recruited 19,857 Facebook users and 15,585 Instagram users who spent at least 15 minutes per day on the respective platform. We randomly assigned 27 percent of participants to a treatment group that was offered payment for deactivating their accounts for the six weeks before the election. The remaining participants formed a control group that was paid to deactivate for just the first of those six weeks.

They then compare the difference in emotional state between before and after the deactivation for the treatment group (who deactivated for six weeks) and the control group (who deactivated for one week), and find that:

...users in the Facebook deactivation group reported a 0.060 standard deviation improvement in an index of happiness, anxiety, and depression, relative to control users...

...users in the Instagram deactivation group reported a 0.041 standard deviation improvement in the emotional state index relative to control.

Those effects are quite small in comparison to other interventions, and in comparison to changes in emotional state over time, and:

Under the approximation that emotional state index is normally distributed, the estimated effects of Facebook or Instagram deactivation would move the median user from the 50th percentile to the 52.4th or 51.6th percentile, respectively.

Why was the effect so small? Users who deactivated Facebook or Instagram spent more of their newly-freed-up time on other apps. Those who deactivate Facebook increased their use of Instagram, but also:

Facebook and Instagram deactivation both increased use of Twitter, Snapchat, TikTok, YouTube, web browsers, other social media apps, and other non-categorized apps by a few minutes per day.

It's little wonder that deactivating Facebook or Instagram had such small effects, given the offsetting behaviour of the users pivoting to using other apps, including other social media apps, instead. None of this is to say that the intervention made the users worse off, but it probably didn't make them better off overall either.

The second example is this NBER Working Paper by Billur Aksoy (Rensselaer Polytechnic Institute), Lester Lusher (University of Pittsburgh), and Scott Carrell (University of Texas at Austin), which looked at the effects of the app 'Pocket Points' at Texas A&M University. Specifically:

Pocket Points is marketed as a soft commitment device and provides incentives for students to stay off of their phones. In particular, Pocket Points rewards students with “points” for staying off their phones during class: Students open the app, lock their phone, and start accumulating points, all while the app verifies through GPS coordinates that the student is indeed in class. These points can then be used to get discounts at participating local and online businesses.

One thousand Texas A&M students were invited to participate in the experiment in 2017, and half were randomised to treatment, where they were instructed to download the Pocket Points App and create an account. Aksoy et al. then compare the treatment and control students. They also distinguish effects between those who used the app at least once, and those who used the app more than once a week (based on survey results). Importantly, first Aksoy et al. report that:

...treatment students were about 25 percentage points more likely to download the app... and over 31 percentage points more likely to use the app... than control students. Additionally, treatment students were 13 percentage points more likely to use the app more than once a week...

So, the treatment worked in encouraging students to use Pocket Points. But did it work? Aksoy et al. find some positive effects in the classroom, such as:

...Pocket Points usage is associated with a 0.42 standard deviation reduction in phone distraction rate in the classroom... we observe increases in student satisfaction with their academic performance for the semester: Students who used the app more than once a week experienced more than a one standard deviation increase in satisfaction...

That seems promising. However, when they look at student grades (from their official TAMU transcripts), Aksoy et al. find that:

...students who used the app more than once a week experienced a 0.50 unit increase in GPA. These estimates, however, are statistically insignificant...

So, even though the Pocket Points app reduced in-class distractions, it had no statistically significant effect on students' grades. That may be because there were also:

...significant decreases in time spent studying on campus... treated students spent approximately 18.2 hours/week studying, 12.0 of which were on campus, whereas control students spent 20.3 hours/week studying, 14.1 of which were on campus. Thus, it appears that the increased learning and attendance in the classroom came with a reduction in time spent studying.

It's little wonder that there was no effect on students' grades, given the offsetting behaviour of students spending less time studying, perhaps because they believed (perhaps rightly) that their in-class study time was more effective without phone distractions. None of this is to say that the app made the students worse off, but it probably didn't make them better off overall either.

When we implement an intervention that we hope will lead to better outcomes, such as improved emotional state due to less time spent on social media, or improved student performance due to more focused studying in class, we need to be prepared for the offsetting behaviour of the people affected by the intervention. Their lives are complicated, and they are trading off between competing goals. Just because we want to make one of their goals easier to achieve, that doesn't mean that they will focus extra energy on that goal. As we have seen from the two examples above, they may simply re-focus their energies elsewhere, leaving the outcome that we want to improve unchanged.

[HT: Marginal Revolution, last year]

The Guardian Cap mandate in the NFL and the 'Peltzman effect'

Yes, this is another NFL post (after yesterday's post). And before we get to the post: Yes, I will be cheering for the Atlanta Falcons tomorrow, since a Falcons win is the only way for my Panthers to make the playoffs, after they lost to the Buccaneers today. With that out of the way, onto business: player safety in the NFL.

Concussions have become big news in contact sports over the last decade or so. Long-time fans will be sure to have noticed that more players are being substituted out of games, or missing games entirely, due to concussions, than was the case in the past. The concern about concussions is due to their implication in Chronic Traumatic Encephalopathy (CTE), which is linked to behavioural problems, mood swings, and cognitive issues, which all look very similar to dementia.

The NFL has been the target of a lot of attention, and has taken action. One change that was implemented was to introduce 'unaffiliated neurotrauma consultants' to make in-game decisions about whether players should be kept out of a game after an on-field concussion (although that change has not been without controversy). Another change was the introduction of the Guardian Cap, which is a soft shell that attaches over an existing helmet and is supposed to reduce the force of impacts to the head. Do Guardian Caps work though? Guardian, the makers of the cap, is itself cautious on that point:

Researchers have not reached an agreement on how the results of impact absorption tests relate to concussions. No conclusions about a reduction of risk or severity of concussive injury should be drawn from impact absorption tests. Guardian has always stood by the fact that Guardian Caps reduce the impact of hits and that its use should be one piece of the puzzle to an overall safety strategy.

That shouldn't dissuade researchers from looking into the impact on concussions, and it hasn't. This new article by Kerianne Lawson Rubenstein (Syracuse University) and Todd Nesbit (Ball State University), published in the Southern Economic Journal (open access), looks into whether the introduction of the Guardian Caps was associated with a reduction in concussions in the NFL.

Before you conclude that it is self-evident that a padded helmet that reduces head impacts must reduce concussions, we need to discuss the 'Peltzman effect'. In a famous paper in the 1970s, Sam Peltzman (University of Chicago) showed that mandatory safety devices on cars, such as seat belts, do not reduce traffic deaths, and actually increase the number of non-fatal car accidents. This 'Peltzman effect' is otherwise known as 'offsetting behaviour', where a policy makes an activity less risky, but results in more of the now-less-risky behaviour. One example of this in sports was that when new driver safety devices were installed in race cars in NASCAR, drivers responded by driving more recklessly, increasing the number of crashes.

Rubenstein and Nesbit test for a Peltzman effect of the Guardian Caps. They hypothesise that:

...wearing the Guardian Caps incentivizes riskier tackling due to the perceived safety from wearing the Cap. Players may not accurately calculate the risk of a helmet-to-helmet hit if they place a lot of faith in the Cap's ability to absorb the shock. And if the players only wear the Caps in practice and not during games, they may actually end up hitting harder and protecting themselves less when falling to the ground in games without the Caps because of their practiced behavior.

In other words, even if the Guardian Caps work as intended and make each impact less dangerous, players may respond by taking more risks, leading to more hits, harder hits, or less care in avoiding hits. This would be the unintended consequence of using the Guardian Caps.

The NFL mandated the use of the Guardian Cap in contact practice sessions through to the second preseason game in 2022, for all linemen, linebackers, and tight ends. This was extended to all contact practice through the entire season in 2023, as well as including running backs and fullbacks. In 2024, this was extended again, by including wide receivers and defensive backs, and by allowing (but not mandating) players to wear the Guardian Cap during games (although, from my viewing, very few players play while wearing a Guardian Cap).

Rubenstein and Nesbit use data from the 2021/22 to 2023/24 NFL seasons, and a difference-in-differences research design. This basically involves calculating: (1) the difference in concussion prevalence between players in positions with the mandate and players in positions without the mandate before it was introduced; and (2) the same difference after the mandate was introduced; and then testing whether the difference in those two differences is statistically significant. Rubenstein and Nesbit rely on data from weekly injury reports, and their unit of observation is the injured player. Essentially this analysis answers the question whether, for a given injured player, were they more likely to be injured by a concussion when the Guardian Cap was mandated for their position than when it was not?

In their main analysis, Rubenstein and Nesbit find:

... a consistently positive and significant relationship between players that were mandated to wear Guardian Caps after the mandate took place and concussions. This suggests that relative to before the mandate, concussions after the mandate were more likely for players in the position groups affected by the mandate when looking at the total number of injuries across the NFL.

The size of the effect is small but nevertheless meaningful - a given injured player is about 2.6 percentage points more likely to have been injured by a concussion with the Guardian Cap mandate in place, than without it. However, there is a problem here. The question they are answering isn't the question we really want to answer. An injury report might be more likely to be a concussion if there are more concussions, or if there are fewer injuries of other types. In other words, the share of injuries that are concussions can go up either because concussions are more common, or because other injuries are less common, even if concussions themselves haven't changed much. Rubenstein and Nesbit partially allay this concern by showing that there are no effects on either knee injuries or ankle injuries. However, despite being statistically insignificant, the point estimate on knee injuries is negative and of the same magnitude as the positive effect on concussion injuries. So, the effect they observe with their main analysis could be driven by there being fewer knee injuries, and not more concussions.

Fortunately, Rubenstein and Nesbit then go on to look at the count of concussions in each game, comparing players in positions mandated to wear the Guardian Cap and players in positions who were not mandated. In this analysis, they find that:

The coefficient on our variable of interest is consistently positive and statistically significant, suggesting that the prevalence of concussions among players that were mandated to wear the Guardian Caps increased compared to other players after the mandate went into effect. The magnitude of our coefficients suggests about 0.07 more concussions per game for the treated group of positions on a team relative to the untreated group of positions on the team. This may seem small, but considering the observation is per team and per week, our estimates suggest there were about 36 more concussions per NFL season across all linemen, linebackers, tight ends, full backs, and running backs required to wear Guardian Caps than in the season before the mandate.

So, it does appear from the analyses that there was an unintended consequence of mandating the Guardian Caps. The number of reported concussion injuries increased. But not so fast! Remember that the mandate was introduced during a period of increasing scrutiny of head injuries in the NFL. The introduction of the Guardian Caps was not the only change during this period. The NFL changed its concussion protocols during the 2022 season (see also this note by the NFL Players Association). So, an increase in concussions noted on injury reports might be because of a genuine increase in concussion injuries, or it might be because of an increase in the reporting of concussions. Because the concussion protocols changed during the same period, it’s hard to know what concussion reports would have looked like in the absence of the Guardian Cap mandate. Overall, that means that it's very hard to separate a true increase in concussions from increased reporting.

So, we can't conclude from this research that there was a Peltzman effect of mandating the Guardian Caps. It remains a possibility, but we would need better research in order to identify any such effect.

[HT: Marginal Revolution]

Read more:

• Safer cars and offsetting behaviour: NASCAR edition

The moral hazard of bailing out scam victims

Earlier this year, bowing to pressure from media and advocacy groups, banks acted to help out victims of financial scams. As the New Zealand Herald reported in April:

Banks will be required to reimburse fraud victims up to $500,000 and introduce new rules to crack down on scammers in a suite of measures unveiled today.

The changes include new technology to identify risky or unusual transactions based on a customer’s banking history and the ability to freeze payments and suspect accounts.

The moves are in response to Government demands to improve customer protections or be regulated in the face of Kiwi victims losing hundreds of millions of dollars to scammers each year...

The New Zealand Banking Association says it is rolling out a package of new protections in line with international best practice, which will be in place by November.

However, by itself the reimbursement of fraud victims creates a problem that might actually result in there being more victims of fraud overall. That is because of what economists call moral hazard. Moral hazard arises when one of the parties to an agreement has an incentive, after the agreement is made, to act differently than they would have acted without the agreement. Importantly, the agreement doesn't have to be a formal contract. It can be an implicit understanding or expectation.

In this case, there is an implicit agreement between banks and their clients, that makes it clear that the bank will reimburse the client when the client is impacted by a financial scam. Without that implicit agreement, bank clients have a strong financial incentive to avoid being scammed. If they are scammed, they lose a lot of money. However, now that banks will bail them out, bank clients have less incentive to act carefully and avoid financial scams. Scammers may be more successful as a result, leading to more scam victims.

This is not to say that bank clients will be flagrantly imprudent with their money, only that at the margin, clients will act a little less cautiously. The moral hazard problem here is that the risky actions of the bank clients end up costing the banks money, in the case when the bank client is scammed and the bank needs to reimburse them. If banks couldn't do anything about the risk, they would be less inclined to take on depositors. If the risk turned out to be extreme, the market for bank deposits could fail entirely.

Fortunately, banks can respond to this increased moral hazard in various ways. The first way is through increased monitoring of their clients. Notice in the quote from the article above that banks will employ "new technology to identify risky or unusual transactions based on a customer’s banking history". By monitoring clients' transactions, banks can hopefully head off any scam activity. Banks could also use incentives to reward their clients for not being scammed. Perhaps they could pay slightly higher interest rates to those that pass occasional bank-delivered 'scam checks' (where the bank employs someone to test whether the client will fall for a scam). None of the banks are proposing this yet, but it is a solution that is open to them.

Overall, this change is likely to be positive for bank clients. However, with these new scam protections in place, people will be less careful. Banks will need to remain very vigilant, or the number of scam victims will increase.

Tim Harford on unintended consequences

In the Financial Times last month, Tim Harford (who is always an interesting read) had a good piece on unintended consequences (paywalled, but available ungated on his website). It covers a number of examples of unintended consequences, including the (possibly apocryphal) 'cobra effect':

It describes an attempt by the British Raj to rid Delhi of its cobras by paying a bounty for each cobra skin, thus encouraging a thriving cobra-farming industry.

However, Harford devotes more attention to a more recent example that is definitely not an urban myth, where:

...the Straits Times and Climate Home News recently reported on a striking scheme in Melaka, Malaysia, where locals were selling cooking oil that would eventually be used to supply European producers of aviation fuel. The underlying idea of turning a waste product, used cooking oil, into something that can be blended into aviation fuel seems as appealing as getting the cobras out of Delhi. Cooking oil starts tasting bad after being used for frying three to five times, but as an input to aviation fuel, used oil is perfectly good.

At this point two intriguing forces intersect: European governments are demanding that airlines use more biofuels from sustainable sources — used cooking oil being one — while the Malaysian government subsidises cooking oil. This means that in Malaysia buying fresh oil is cheap and selling used oil is lucrative. If you run a food stall or restaurant in Malaysia, you can buy subsidised fresh oil, fry food a few times, then sell the waste oil at a profit. It’s a nice side-hustle.

The trouble is, writes financial journalist Matt Levine, “If you don’t run a restaurant, you can buy fresh cooking oil for $0.60, not use it to fry food any times, and then say, ‘Oh, yeah we totally used this oil,’ and sell it to a refiner for $1.” That seems a simpler and more scalable way to proceed. It certainly cuts out the precarious, time-consuming hassle of actually running a restaurant. It is hard to know how much fresh oil is being resold this way, but fraudsters have both the motive and the opportunity. Climate Home news notes that Malaysia collects an astonishing volume of “used” cooking oil: more per person than anywhere else, and two and a half times as much as second-placed Singapore.

You can real the original stories on this on the Straits Times and Climate Home News. Incentives matter, and it is incentives that can create unintended consequences. When a policy like this goes wrong, it is often a failure to consider the incentives.

However, just because the consequences are unintended, that doesn't mean that they need be unanticipated. Policies should be subjected to a careful consideration of the incentive effects that they create, and importantly, how entrepreneurial folks might try to game the policy. Software developers have a practice of 'red teaming' new software (like generative AI tools) to test whether they can be hacked or used for no good. Perhaps governments need to start red teaming policy?

This couldn't backfire, could it?... Spanish slugs edition

My ECONS102 class covered unintended consequences this week. So, this story from YLE in Finland last month seemed very timely:

The population of the invasive Spanish slug (Arion vulgaris) has exploded in Finland, prompting four cities to offer six euros per litre for dead slugs.

Known as a highly destructive garden pest and even nicknamed the "killer slug" following reports of it preying on bird chicks, this species thrives in wet summers, with each individual capable of laying hundreds of eggs.

To combat infestations this summer, the cities of Lappeenranta, Turku, Kerava and Jämsä are encouraging locals to get the Crowdsorsa app, which allows residents to earn money by helping remove invasive species...

Getting a payout requires a few more steps. To earn a reward, slug killers must film a video showing the slugs being packed into one-litre containers (like milk cartons) sealed with tape and disposed of in designated bins.

The final step is uploading a video of the packing and disposal process to the Crowdsorsa app, and if everything is done correctly, the payment gets credited to the user's account.

These sort of bounty programmes have a habit of backfiring, though. The emblematic example of this is a story I wrote about back in 2015:

The government was concerned about the number of snakes running wild (er... slithering wild) in the streets of Delhi. So, they struck on a plan to rid the city of snakes. By paying a bounty for every cobra killed, the ordinary people would kill the cobras and the rampant snakes would be less of a problem. And so it proved. Except, some enterprising locals realised that it was pretty dangerous to catch and kill wild cobras, and a lot safer and more profitable to simply breed their own cobras and kill their more docile ones to claim the bounty. Naturally, the government eventually became aware of this practice, and stopped paying the bounty. The local cobra breeders, now without a reason to keep their cobras, released them. Which made the problem of wild cobras even worse.

So, how long will it be before an enterprising Finn realises that they can make money by breeding these Spanish slugs? Particularly since:

Hunting down the slugs is not always easy, and the pest can be confused with the homegrown Limax cinereoniger, or ash-black slug.

They would be much easier to hunt down if you are farming them yourself! And, when you are farming the right type of slug, there's no risk of confusing them with a local slug. It would be so much easier to claim the bounty that way, than by fossicking around hunting wild slugs. How long will it be before the Finns work this out?

[HT: Marginal Revolution]

Read more:

• This couldn't backfire, could it?... Ragweed edition
• This couldn't backfire, could it?... Possum bounty edition
• This couldn't backfire, could it?... Cane toad edition
• This couldn't backfire, could it?... Dead possums edition

Co-authorship in economics in the aftermath of #MeToo

The #MeToo movement was a necessary corrective action recognising decades of toxic behaviour across many occupations. Economics was not immune (for example, see here or here). However, could the #MeToo movement have had an unintended consequence on the careers of female economists? If having a female co-author increases the chances of a male economist being called out for even minor indiscretions, does this meaningfully raise the cost of having female co-authors? And if the cost of having female co-authors meaningfully increases, we would expect to see fewer male-female collaborations (especially where the male economist is more senior).

That is the topic addressed in this new article by Noriko Amano-Patiño, Elisa Faraglia, and Chryssi Giannitsarou (all Cambridge University), published in the journal European Economic Review (open access). The use data on co-authorships in the nearly 27,000 working papers published in the NBER and CEPR working paper series between January 2004 and December 2020. They first note that:

The MeToo movement’s impact on the economics profession may have fostered a more respectful research environment, increased scrutiny of existing practices, and promoted greater diversity and inclusivity within the community. Conversely, it could have induced a chilling effect on collaborations, potentially causing researchers to become more hesitant in forming partnerships outside their established networks due to heightened concerns about trust and reputational risk.

Although the #MeToo movement started in 2017, Amano-Patiño et al. use the second quarter of 2018 as the effective date for the onset within the economics profession (that dates to the fallout arising from a series of studies, including a particularly notable study by Alice Wu, which I blogged about here). However, Amano-Patiño et al. vary the effective start date and find little difference in their results. So, comparing papers written before and after 2018, and controlling for a variety of author characteristics, Amano-Patiño et al. find that there was:

...a rise in the proportion of women coauthors for men, both overall and within junior and senior subgroups. Conversely, we find a decrease in the proportion of women coauthors for women, both overall and within corresponding seniority levels. Using a back-of-the-envelope calculation, these increases in mixed-gender collaborations, translate to an estimated 12.3% increase in women coauthors per 100 men-authored papers.

That seems to go against what we might expect, if the cost of having female co-authors has increased for male economists after #MeToo. However:

...we estimate decreases in the proportion of senior coauthors (especially senior women) for juniors, and symmetrically, in the proportion of junior coauthors (particularly junior women) for seniors. The decreases in collaborations between senior and junior economists we quantify, suggest a 3.0% decrease in the share of senior authors collaborating with junior coauthors.

 Amano-Patiño et al. interpret this as showing that:

...post-MeToo, authors have increasingly sorted their collaborations by seniority rather than by gender.

What might explain these findings? Researchers who are worried that they might get called out by female co-authors might respond by reducing their collaborations with female co-authors generally, as I noted at the start of this post. Or, they might reduce their collaborations with new co-authors, who they have not developed trust with, while continuing to collaborate with more senior authors that they trust. This is also consistent with Amano-Patiño et al.'s further results, where they note that:

...we find evidence of a general chilling effect on the expansion of economists’ professional networks. We estimate decreases in the share of new coauthors across all seniorities and genders, the share of new senior coauthors for juniors, and the share of new junior coauthors for seniors. Our estimates translate into 5.4% fewer new coauthorships per 100 papers. This trend is primarily driven by a substantial decrease in new coauthorships between senior and junior authors: for seniors, the share of new junior coauthors has dropped by 18.4%, with a particularly sharp 48% decrease in their share of new junior women coauthors.

Amano-Patiño et al. interpret their results as bad news, noting that if the results can be interpreted as causal:

First, authors may have prioritised increasing gender diversity in their collaborations. Second, senior authors have increasingly relied on their existing collaboration networks rather than forming new coauthorships. The latter trend, if persistent, could have long-lasting consequences for the career development of women economists and potentially exacerbate the already ‘leaky’ pipeline in the profession.

 Amano-Patiño et al. stop short of noting that this is a substantial negative unintended consequence of the #MeToo movement in economics. Although the environment for female economists may be improving, at least one aspect, being the opportunities for collaboration and mentoring from senior economists, appears to be declining. And that will be a difficult problem to address. Indeed, Amano-Patiño et al. aren't able to offer any concrete steps that could be implemented to solve this issue, concluding with some more general statements:

These results underscore the urgent need for sustained efforts to cultivate a supportive ecosystem and dismantle systemic barriers hindering the advancement of women and junior economists in the field. The economics profession must proactively continue to foster a safe, inclusive environment by evaluating, monitoring, and educating on relevant issues.

Sadly, I also can't offer anything concrete, and only hope that the current desire for change within the profession will ultimately lead to greater opportunities for female economists overall.

This couldn't backfire, could it?... Dead possums edition

The New Zealand Herald reported earlier this week:

A conservationist keen to do his bit for the country’s Predator Free 2050 goal is urging gardeners to purchase dead possums from him instead of buying blood and bone for fertiliser this spring.

Wayne Parsonson lives beside the Maungataniwha Forest and is a member of its guardianship project group Honeymoon Valley Landcare. However, he says the possum initiative is his independent venture, which he hopes will inspire others nationwide to follow suit...

Parsonson had caught 1250 possums in the past year.

The fur was plucked and sold to be blended with merino wool for warm, natural clothing.

The ungutted carcasses were rich with nutrients to enliven soil ecology, he said.

For fertilising purposes, he was offering 11 frozen possum carcasses for $35.

Sales were “ticking over” nicely, Parsonson said.

First, good on Wayne Parsonson for doing something about pest possums. And I hope he continues in his efforts. The only good possum is a dead one in my view, except in Australia where, for some reason, they are beloved by many locals. However, I would not like to see a thriving market in possum carcasses.

To see why, we first need to talk a little bit about cobras. As I wrote back in 2015:

One of the most famous (possibly apocryphal) stories of unintended consequences took place in British colonial India. The government was concerned about the number of snakes running wild (er... slithering wild) in the streets of Delhi. So, they struck on a plan to rid the city of snakes. By paying a bounty for every cobra killed, the ordinary people would kill the cobras and the rampant snakes would be less of a problem. And so it proved. Except, some enterprising locals realised that it was pretty dangerous to catch and kill wild cobras, and a lot safer and more profitable to simply breed their own cobras and kill their more docile ones to claim the bounty. Naturally, the government eventually became aware of this practice, and stopped paying the bounty. The local cobra breeders, now without a reason to keep their cobras, released them. Which made the problem of wild cobras even worse.

Now, think about the case of possums. The government isn't providing a bounty for killing possums (which I've already written about). However, if a thriving market in possum carcasses develops, then possum hunters will have a strong incentive to kill possums for profit. That sounds like a great thing. However, killing wild possums takes a lot of effort. It would be much less effort for 'hunters' to raise their own possums, and then kill them in cages. So, some entrepreneurial folks will effectively start 'farming' possums. It is entirely possible that there would be more possums overall as a result.

So, while I admire Parsonson's backyard efforts in killing possums, and I'm happy for him to profit a little from the activity, I wouldn't like to see this market grow too much.

Read more:

• This couldn't backfire, could it?... Ragweed edition
• This couldn't backfire, could it?... Possum bounty edition
• This couldn't backfire, could it?... Cane toad edition

Unintended consequences of visas for victims of serious crime

Following yesterday's post, and still on the topic of incentives, consider this example reported by CWB Chicago back in May:

Federal prosecutors on Friday announced charges against five people in connection with a Chicago-based scheme that staged armed robberies so the purported victims could apply for U.S. immigration visas reserved for legitimate crime victims...

Officials believe hundreds of people, including some who traveled from out of town, posed as customers in dozens of businesses across Chicago and elsewhere, all hoping to win favorable immigration status by becoming “victims” of pre-arranged “armed robberies.”...

Federal prosecutors said on Friday that each. purported “victim” paid “thousands of dollars” for the privilege of being robbed at gunpoint. Ringleaders then instructed the “victims” to be at a certain location at a specific time to be “robbed.”...

After the robberies, the “victims” went to their local police departments to secure documentation that they were the victims of a crime that qualified them to apply for a “U-visa.” That’s an immigration status reserved for “victims of certain crimes who have suffered mental or physical abuse and are helpful to law enforcement or government officials in an investigation or prosecution,” federal officials explained Friday. Some relatives of U-visa recipients also qualify for special status. In time, U-visa recipients may qualify for permanent residency.

Obviously, the policy to grant a visa to victims of serious crime was implemented in order to help those victims (as well as crime investigators, since the victims would remain available to provide witness statements and testify if a case goes to trial). The problem is that it changes the costs and benefits of being a victim of crime for those who are not already US citizens, and created unintended consequences.

Being a victim of a serious crime comes with obvious costs, but nothing much in the way of benefits. However, being able to claim a U-visa adds some benefits to being a victim of serious crime (for non-US citizens). That by itself is probably not enough to make someone want to be the victim of a serious crime. But what if they could be a 'victim of a serious crime', without being victimised by the crime? They would gain the benefit of the U-visa, without the psychological costs of being a victim.

Now, if the benefit of the U-visa is sufficiently valuable (and given the number of illegal border crossings into the US each year, it seems like living in the US is pretty attractive), a non-US citizen might even be willing to pay for the 'privilege' of being a 'victim of a serious crime'. And there you have it - an unintended consequence of the U-visa.

[HT: Marginal Revolution]

Public service targets and Goodhart's Law

A couple of people have asked me this week what I think about the government's new public sector targets (see New Zealand Herald stories here and here, or the DPMC page (with associated fact sheers) here. It's fair to say that I have mixed views about these targets.

On the one hand, having a target gives something meaningful for the public sector to aim for. That's better than an aimless exercise in reproducing the status quo. That is essentially the government's argument, and it is somewhat persuasive.

On the other hand, I am mindful of Goodhart's Law, which essentially says that once you change the rules, players will change the way they play the game [*]. I prefer the version of the Law expressed by the anthropologist Marilyn Strathern (in this 1997 article (gated)), which is: "when a measure becomes a target, it ceases to be a good measure".

Looking at the public sector targets that have been proposed, there is a fair amount of scope for the players to change how the game is played, to ensure their success in meeting the targets (or, at least, looking like they are making meaningful progress towards the targets). Take the example of shorter stays in emergency departments. The target is: "95% of patients to be admitted, discharged, or transferred from an emergency department within six hours". Hospitals could make meaningful progress on this target by actually admitting, discharging, or transferring patients more quickly. However, that is hard work, and probably requires more resources, which they may not have. It is much easier to simply not record patients at the time they arrive at the emergency department (by having some sort of informal queue or waiting list, before their visit is recorded and the six-hour clock starts), or having the patients sit in ambulances (which is so common that there is even a term for it - 'ramping').

Or what about the aim of having fewer people on the Jobseeker Support Benefit. The target is: "50,000 fewer people on Jobseeker Support Benefit". That could be achieved by finding jobs for a net 50,000 people on the benefit. Again, that is hard work for the Ministry of Social Development, and probably requires more resources, which they may not have. It is much easier to simply reduce the number of beneficiaries in other ways, such as by making them more onerous to apply for in the first place, and imposing additional requirements on beneficiaries so that more of them are penalised by losing their benefits (and yes, that has already been announced).

You could tell similar stories about many of the other targets that have been announced. On the one hand, these are areas where society should genuinely seek improvement. Who would argue against having shorter waiting times at emergency departments, or having fewer people out of work? However, the unintended consequence of these targets may be that we get improved on what is actually measured (the number of patients being dealt with within six hours, or the number of people on the Jobseeker Support Benefit), but no meaningful change on what we actually want (hospital waiting times, or the number of people out of work). 

None of this is to say that there shouldn't be targets at all, only that we should be cautious about interpreting success based on a single target that can be subject to manipulation. There is a case to be made that we need some secondary measures that allow us to ensure that the public sector is not gaming the primary measures. So, perhaps we measure the number of patients turned away from hospitals, ambulance utilisation, or patient satisfaction with hospitals, and benefit cancellations, 'discouraged workers', and the number of people outside the labour market (or the employment rate). There is no need to attach targets to those secondary measures, but monitoring them might help people to interpret how the public sector is achieving gains in the primary measures. [**]

Without the government keeping a closer eye on a range of secondary measures, in addition to the primary measures that are being targeted, you can see why I have mixed views about these targets.

*****

[*] What Charles Goodhart actually wrote, in this 1975 book chapter (gated) is: "Any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes".

[**] As an aside, what we definitely don't need is multiple primary measures, such as the nine measures of child poverty that are used, thereby allowing the government to cherry-pick the measure that has the most positive interpretation on a given day.

When you offer free rubbish disposal, you'll get more rubbish

The Rotorua Daily Post reported today:

Kāinga Ora has been forced to pick up the clean-up tab after “mountains of rubbish” were dumped on Rotorua’s Wrigley Rd following what was supposed to be a friendly day to bring the street’s community together.

More than 40 tyres, whiteware, lawnmowers, old mattresses, drawers, old bikes, bags of household rubbish and dirty nappies were dumped on Fordlands’ Wrigley Rd, mainly over the weekend, after people who don’t live on the street “abused” a clean-up day organised by Kāinga Ora that offered free skip bins...

One resident, who didn’t want her name published for fear of repercussions, told the Rotorua Daily Post it was initially an awesome day as residents were pitching in to help each other carry heavy items, including old fridges and mattresses...

She said word then quickly spread, including on social media, that Wrigley Rd was the place to go to dump rubbish free of charge.

She said on Friday she was concerned when more people arrived in cars with trailers and started to dump rubbish.

None of this should be particularly surprising. When the cost of doing something (in this case, rubbish disposal) reduces, people will tend to more of that thing. When the cost is lowered to zero, people may do a lot more of that thing. When the residents of Wrigley Road were offered free rubbish disposal, we shouldn't be surprised that the Wrigley Road residents disposed of lots of extra rubbish.

However, this came with an unintended consequence. Because there was no way of easily policing who was disposing of rubbish, other enterprising individuals took the opportunity to dispose of their rubbish in Wrigley Road as well. As I note in my ECONS102 class, this might have come as a shock to the Kāinga Ora staff, because they didn't think through the incentives that free rubbish disposal creates. That's because it's easy to envision how people who think like you do will react to an incentive plan, but not everyone thinks like you do. In fact, people are often far smarter at taking advantage of incentives than we give them credit for.

So, it should not surprise us at all that offering free rubbish disposal resulted in a lot of rubbish being dumped.

Woolworths learns the hard way that incentives change behaviour

In their book Think Like a Freak (which I reviewed here), Steven Levitt and Stephen Dubner give an explanation of how incentives lead to unintended consequences:

• No individual or government will ever be as smart as all the people out there scheming to take advantage of an incentive plan;
• It’s easy to envision how people who think like you do will react to an incentive plan, but not everyone thinks like you do; and
• We assume that people will always behave the same way they do today. But incentives by their very nature change people’s behaviour, sometimes in unexpected ways.

Woolworths learned this the hard way this week, as explained in this New Zealand Herald article:

A loophole in the new Woolworths Everyday Rewards loyalty programme has seen some shoppers create burner accounts and claim hundreds of dollars in points to spend in-store.

A generous 1000 points for downloading the app and registering an account has seen people create multiple accounts to claim the reward.

The points were then shared back to the main account. A $15 voucher to spend in-store or online was given for every 2000 points.

One man who worked with computers had heard through friends about the loophole and was surprised it was so easy.

“I heard about people making multiple burner accounts and stocking them each with $150-plus in rewards, then driving around buying up the sports supplements,” he said.

He said Woolworths had since shut the loophole by disabling the ability to share points between cards.

How did this happen? Woolworths is clearly not as smart as all the people who try to take advantage of the new rewards scheme. It's easy for Woolworths to anticipate how their own marketing team (or whoever devised the rewards scheme) will react to the scheme, but not everyone thinks that way. And, if they based the scheme on people's past behaviour on the OneCard loyalty scheme, making a change to the scheme (by giving away 1000 free points) will change their behaviour. This was a classic case of unintended consequences, and an expensive lesson about human behaviour for Woolworths.

[HT: The incomparable Gemma Piercy-Cameron]

Family leave and the gender wage gap

The gender wage gap has been decreasing slowly and steadily over time. At least, that's what I thought until I read this 2023 NBER Working Paper by Peter Blair (Harvard University) and Benjamin Posmanick (St. Bonaventure University). They present the following graph of the gender wage gap in the US (for White women, compared with White men, between 1975 and 2015:

Note that the upward trend here represents a decrease in the gender wage gap (the y-axis is negative). What is apparent from the graph is that the gender wage gap in the US decreased relatively quickly from 1975 to 1993, and then the decrease suddenly and dramatically tailed off. What happened?

Blair and Posmanick single out the Family and Medical Leave Act, which was passed in 1993, and "which guarantees 12 weeks of unpaid, job-protected leave to qualified workers for covered family or medical circumstances". The birth of a child is one of the 'family or medical circumstances' that is covered. However, a lot of other changes to welfare and other things happened in 1993, so Blair and Posmanick smartly avoid looking purely at 1993. Instead, they conduct an event study, taking advantage of the fact that twelve states and the District of Columbia had implemented family leave policies prior to 1993. So, in their main analyses, they look at how the gender wage gap changed between the period before, and the period after, implementing family leave, for the states (and D.C.) that had these policies in place prior to 1993. They focus on the impact on White women (compared with White men), but the appendix presents wage gaps (compared with White men) for Black men and Black women as well. It is reassuring (in terms of the validity of their results) that the results look similar (albeit not as great) for Black women, and that there is no change in the trend of a declining wage gap for Black men (consistent with the results being specific for the gender wage gap, rather than picking up some change in welfare that might affect disadvantaged groups more generally).

They find that:

...prior to the leave policy the gender wage gap experienced by white women was falling at a rate of 0.70 percentage points per year (p-value <0.001). In the post period, the rate of gender wage convergence falls by 0.53 percentage points per year to 0.17 percentage points per year. The decline is statistically and economically significant, and the post-leave rate of gender wage convergence is marginally different from zero.

In other words, the rate of decline of the gender wage gap decreased by 75 percent (from 0.70 percentage points per year to 0.17 percentage points per year). An interesting implication of their results, which they don't address, is what it implies about the length of time required for the gender wage gap to be eliminated (based on an assumption of a linear decline). The gender wage gap for White women was 23.8 percent in 1993 (from Appendix Table A2). So, at the rate of decline from 1975 to 1992, the gender wage gap would be eliminated in a further 34 years (that is, in 2025). But, after the family leave policy was enacted, that extends out to 140 years (that is, in 2133).

The results that Blair and Posmanick obtain when looking at the full sample of states (where most states got the family leave policy in 1993) are similar, but paint a worse picture:

We find that the gender wage gap faced by white women declined by a statistically significant 0.70 percentage points per year prior to the policy change, which is identical to the pre-leave rate of gender wage convergence that we estimated using only the state variation... After the policy change, the rate of wage convergence for white women declines by 0.67 percentage points to 0.03 percentage points.

In those results, the rate of decline of the gender wage gap decreased by nearly 96 percent (from 0.70 percentage points per year to 0.03 percentage points per year). Don't even ask how long it would take to eliminate the gender wage gap at that rate. Ok, do ask. It's 793 years.

Blair and Posmanick then go on to show that the family leave policy can explain 94 percent of the unexplained change in the gender wage gap (the 'Gap Effect') between 1993 and 2015 (after accounting for the explained change due to changes in observable factors like age, education, and occupation). On this point they note that:

As articulated in Blau and Kahn (2006): "The Gap Effect measures the effect of changing differences in the relative positions of men and women in the male residual wage distribution, including the effect of an improvement in women’s unmeasured characteristics or a reduction in the extent of discrimination against women.” Given the differences in family-leave taking between men and women, family leave policies may simultaneously decrease the unmeasured characteristics of women in the labor market and increase the extent of discrimination women face.

Overall, it is clear from the results of this paper that family leave policies are a case of unintended consequences. They are designed to make the labour market more flexible for parents, but they result in a stymieing of efforts to reduce or eliminate the gender wage gap. Given that the family leave provisions in the US are far less generous than in other Western countries in Europe and Australasia, it makes me wonder how much of an effect family leave has on maintaining the gender wage gap in those countries.

[HT: Marginal Revolution, early last year]

This couldn't backfire, could it?... Regulating teen's access to social media edition

The New Zealand Herald reported over the weekend:

Utah became the first state to enact laws limiting how children can use social media after Republican Governor Spencer Cox signed a pair of measures today that require parental consent before kids can sign up for sites like TikTok and Instagram.

The two bills Cox signed into law also prohibit kids under 18 from using social media between the hours of 10.30pm and 6.30am, require age verification for anyone who wants to use social media in the state and seek to prevent tech companies from luring kids to their apps using addictive features...

Tech giants like Facebook and Google have enjoyed unbridled growth for over a decade, but amid concerns over user privacy, hate speech, misinformation and harmful effects on teens’ mental health, lawmakers have begun trying to rein them in.

This law, and others like it proposed in other US states and elsewhere, have a noble purpose of reducing young people's mental health problems, which are associated with social media use. By restricting teens' access to social media, it is thought that teens will have better mental health as a result.

However, I can already see a potential problem here (aside from the real possibility that this policy solution doesn't actually address how social media affects subjective wellbeing - see for example, this post). Some teens' parents are quite permissive, and those teens will have access to social media under these regulations, as their parents will consent to their teens using social media (and perhaps some of these teens would have access regardless of the regulations). Other teens' parents will try to prevent their teens' access to social media (to the extent that they can do so). This second group of teens could actually be at risk of worse mental health, not better mental health. Consider this: those teens are being excluded from access to social media, when many of their peers are not. For a teen, is there anything worse than feeling socially excluded? This isn't just fear of missing out (FoMO), but genuine anxiety about what their friends and peers are talking about on a platform that they don't have access to. Moreover, giving parents access to teens' social media accounts violates the teens' privacy in a way that may also lead to increased anxiety for some teens, who feel hypervigilant in terms of what their parents might see (many teens already have multiple social media accounts, only some of which are known to their parents). It seems likely then that some teens (not all teens) may actually be made worse off by this policy.

Maybe I'm scaremongering unnecessarily. However, I can easily see how this regulation leads to worse mental health for some teens (even if it may improve mental health for teens on average). I guess we will see how this plays out over time.

Moral hazard, and bailing out failing banks

At the time of the Global Financial Crisis, in 2008-09, I was fresh out of completing my PhD and still fairly idealistic in terms of what it was possible to do with policy. At that time, it struck me as a bad move to be bailing out the banks that had created such a fragile system. My views have softened significantly since then (although, as noted in my previous post on windfall taxes, I think there is an asymmetry to the relationship between business and government), especially as we've seen the global financial system recover (albeit with a significant increase in central bank balance sheets that is proving difficult to unwind). And now we seem to be at it again, with the US stepping in to save uninsured depositors at Silicon Valley Bank and Signature Bank earlier this week.

Why would saving bank depositors be a bad thing? Moral hazard arises when one of the parties to an agreement has an incentive, after the agreement is made, to act differently than they would have acted without the agreement. Importantly, the agreement doesn't have to be a formal contract. It can be an implicit understanding or expectation.

In this case, if large depositors [*] at failed banks lose all of their deposits, then there is a strong incentive for the depositors to undertake due diligence on their bank. They will want to be sure that their money is safe, and if not, they will bank elsewhere. Or, at least, large depositors will spread their risk by having deposits at multiple banks, rather than banking at a single bank. Because banks know that large depositors are being careful, they will do everything they can to convince depositors that they are safe institutions (and at least some of those actions will actually make the banks less risky). However, when the government develops a reputation for bailing out large depositors, this reduces the incentives for large depositors to undertake due diligence, which in turn reduces the incentives for banks to be safe institutions. This is not to say that banks will be flagrantly risky, only that at the margin, banks will act a little more risky. The moral hazard problem here is that the risky actions of the banks end up costing the large depositors, in the case when the bank fails and if the government doesn't reimburse the large depositors. This would be less likely to happen if the government hadn't created an expectation that they would bail out the large depositors in the first place.

In the current situation in the US, bailing out the large depositors at Silicon Valley Bank and Signature Bank reinforces an expectation at all other banks that the US will bail out large depositors if the bank fails. We can expect riskier behaviour from the banks in the future.

So, should we be against these bailouts? On the Marginal Revolution blog, Tyler Cowen has the most clear-headed explanation of why, in spite of any moral hazard problems, bailing out large depositors was probably the right move. One argument that Cowen makes is that:

An unwillingness to guarantee all the deposits would satisfy the desire to penalize businesses and banks for their mistakes, limit moral hazard, and limit the fiscal liabilities of the public sector. Those are common goals in these debates. Nonetheless unintended secondary consequences kick in, and the final results of that policy may not be as intended.

Once depositors are allowed to take losses, both individuals and institutions will adjust their deposit behavior, and they probably would do so relatively quickly. Smaller banks would receive many fewer deposits, and the giant “too big to fail” banks, such as JP Morgan, would receive many more deposits. Many people know that if depositors at an institution such as JP Morgan were allowed to take losses above 250k, the economy would come crashing down. The federal government would in some manner intervene – whether we like it or not – and depositors at the biggest banks would be protected.

In essence, we would end up centralizing much of our American and foreign capital in our “too big to fail” banks. That would make them all the more too big to fail. It also might boost financial sector concentration in undesirable ways.

To see the perversity of the actual result, we started off wanting to punish banks and depositors for their mistakes. We end up in a world where it is much harder to punish banks and depositors for their mistakes.

Cowen makes additional points (and I encourage you to read his entire post), but the one quoted above is the kicker. If large depositors do not expect to be bailed out, they will only bank at large and safe banks. That will make smaller banks, and probably financial start-ups, less viable. This increases the risks to the financial system if one of the (fewer, larger) remaining banks was to fail. So, policymakers are left with a difficult trade-off: bail out the large depositors and create a moral hazard problem, or not bail out large depositors, and be left with a financial system that is more concentrated, and more vulnerable to future failures. An idealist, like my 2008-09 self, might prefer the second option. However, I'm much more comfortable with where this has gone this time.

One last important point to make is that it appears that the US actions are not bailing out the bankers themselves, only the large depositors. That marks a significant difference between now and the Global Financial Crisis, where it appeared that the bankers mostly got off scot-free. I'm sure that some will argue that the banks found themselves in an unfortunate situation that was unforeseeable and therefore the bankers themselves are not responsible for this outcome. We should reject those arguments, as higher interest rates are not unforeseeable, although they may be unanticipated. Bankers should be better at stress testing for a wide range of future interest rate costs. After all, if it results in higher costs, those costs simply get passed onto their customers. Although that's probably the problem here - passing on higher costs because your bank is stress testing at a more rigorous level than other banks simply makes you less competitive. I guess we will find out in the fullness of time whether there were any consequences for the bankers, and whether there are regulatory changes in relation to banks' testing their vulnerability to future interest rate changes.

*****

[*] Notice that I restrict the argument here to large depositors. It is unreasonable to expect small depositors to have the time or resources to undertake due diligence on their bank. Also, small depositors can't as easily spread their risk by having deposits at multiple banks. Small depositors are therefore at risk, and have limited means to reduce that risk. So, it is reasonable that small depositors are protected by the government (through deposit insurance, for example).

The unintended consequence of requiring sesame to be noted on food labels

The AP reported last week:

A new federal law requiring that sesame be listed as an allergen on food labels is having unintended consequences — increasing the number of products with the ingredient.

Food industry experts said the requirements are so stringent that many manufacturers, especially bakers, find it simpler and less expensive to add sesame to a product — and to label it — than to try to keep it away from other foods or equipment with sesame.

As a result, several companies — including national restaurant chains like Olive Garden, Wendy’s and Chick-fil-A and bread makers that stock grocery shelves and serve schools — are adding sesame to products that didn’t have it before. While the practice is legal, consumers and advocates say it violates the spirit of the law aimed at making foods safer for people with allergies...

Under the new law, enforced by the Food and Drug Administration, companies must now explicitly label sesame as an ingredient or separately note that a product contains sesame. In the U.S., ingredients are listed on product packaging in order of amount. Sesame labeling has been required for years in other places, including Canada, Europe, Australia and New Zealand.

If the ingredients don’t include sesame, companies must take steps to prevent the foods from coming in contact with any sesame, known as cross-contamination.

When it comes to food labelling and the choice of ingredients, a rational food producer will choose the option that is the lowest cost (assuming that there is no revenue difference between selling products that do or do not contain sesame). Essentially, with this new law they have to weigh up two options: (1) re-configuring their plant to avoid cross-contamination, and not having to label their products as containing sesame; and (2) adding a small amount of sesame flour to their products, and including sesame in the ingredient list. Clearly, for many producers, the first option is lower cost. They comply with the new law, and importantly they avoid any costs associated with consumers having allergic reactions to their products (because the product label should warn those consumers away).

It's unfortunate that sesame consumers will now find it more difficult to find products that they will not have an allergic reaction to, but this was entirely foreseeable, especially given that this is not the first time that producers have reacted in this way:

Some large companies previously have added other allergens to products and updated their labels. In 2016, Kellogg’s added traces of peanut flour to some cookies and crackers, prompting protests.

 [HT: Marginal Revolution]

The unintended consequences of a free burger promotion

In my ECONS102 class, we discuss unintended consequences in the first week. One of the aspects of that is understanding how it is that incentives lead to unintended consequences. Incentives to change behaviour arise when the relevant costs or benefits of that behaviour change. In their book Think Like a Freak (which I reviewed here), Steven Levitt and Stephen Dubner provide a useful explanation that links incentives to unintended consequences, which can be summarised in three bullet points:

• No individual or government will ever be as smart as all the people out there scheming to take advantage of an incentive plan;
• It’s easy to envision how people who think like you do will react to an incentive plan, but not everyone thinks like you do; and
• We assume that people will always behave the same way they do today. But incentives by their very nature change people’s behaviour, sometimes in unexpected ways.

Which brings me to this New Zealand Herald story from yesterday:

A Wellington burger chain has given away hundreds more burgers than expected to people taking advantage of a flaw in an online promotion.

Just over a week ago Gorilla Burger ran a 24-hour promotion where people who scanned QR codes on their posters throughout the city received a free burger voucher.

However, punters quickly discovered the vouchers could be reused, as long as they were redeemed under a different account and name each time...

A Wellington University student, who the Herald agreed not to name, said he and his flatmates ate nearly every night of the week for free through the promotion.

"Personally I just thought of it as free food, and not having too much money. Then when I found out I could do it more than once, I thought I may as well."

Thinking in terms of Levitt and Dubner's three bullet points, when you change the costs of an activity (in this case, lowering the costs of burgers to zero), you create an incentive for people to change their behaviour (in this case, to consume more burgers). That is what Gorilla Burger wanted. But what they didn't want was people getting multiple free burgers, or eating for free for a week (read the article - you will see). When you create incentives to change behaviour, you need to be careful. People will take advantage of the incentives you create, and in ways that you may not be able to anticipate. You won't anticipate them, because you can't think in the same way that everyone else does, and people are wise to taking advantage of the opportunities and potential loopholes created by incentives. One way to avoid this situation is to get a variety of people to try to anticipate how they would react to the incentives (a plug for diversity again - you probably need a group of people with 'range').

To Gorilla Burger's credit, they honoured the vouchers, although they did put a $15 minimum spend requirement in place. However, they may have learned an expensive lesson.

When does a hobby farmer become a used car importer? Hopefully never...

Earlier this week, the government announced final details of its proposed 'feebate' scheme to incentivise a shift to electric vehicles. As the New Zealand Herald reported earlier this week:

Drivers who buy new cars from July 1 will be able to get taxpayer-funded rebates of almost $8700 for a new electric or plug-in hybrid car, and about $3,500 for used cars.

But those who buy petrol vehicles will cop the cost under the Government's plan announced today – from January 2022, buyers of new petrol cars will have to pay a fee of up to $5875 while those buying newly imported used cars face fees of up to $2875.

That fee would be based on emissions – for example, it would add $2,900 to the cost of a new Toyota Hilux, $1230 to a Kia Sportage, and $830 for a Nissan Navara.

Incentivising a shift to electric vehicles in this way makes little sense in the presence of a binding emissions trading scheme cap. Those issues have been well explained elsewhere (see Thomas Lumley's post at StatsChat, or Eric Crampton's post at Offsetting Behaviour, for example). Instead, let's consider a potential problem that the government has so far thankfully avoided.

Farmers and contractors are up in arms about the feebate scheme, because their work vehicles will suddenly be much more expensive. As RNZ reported yesterday:

Farmers and tradies say the government's clean car package is an unfair tax on them as no alternatives are available for their work vehicles...

Federated Farmers president Andrew Hoggard suggested allowing an exemption for selected sectors - such as farming and construction - until meaningful alternatives were available in New Zealand.

[Canterbury high country farmer Simon Guild] said that was a system the rural sector could get behind.

"That makes total sense while there is no alternative, and I challenge anyone who thinks that there are alternative vehicles we can use to come to our place and I'll take them around in a high-emitting Hilux or whatever vehicle we have available and then they can tell me if that job can be undertaken by one of the current alternatives on the market."

Dunedin builder Sacha Gray said electric vehicles were similarly not up to scratch at the moment for tradies...

Gray also supported Hoggard's proposal.

I can immediately see two problems with a system that would exempt 'work vehicles' for farmers and tradespeople from the tax on imported petrol and diesel vehicles. The first is a variation on the great Jaffa Cake controversy in the UK (see also my post on a similar topic here). Who counts as a farmer or tradesperson, able to buy an imported petrol or diesel vehicle without paying the import tax? Farmers and tradespeople, you may say. Of course, but where do you draw the line? Do people with lifestyle blocks that are large enough to count as businesses for tax purposes farmers for the purpose of avoiding this tax? How big a block of land would you need to own? Do sharemilkers count? They don't own land. What about farmhands? Then that raises similar questions about tradespeople. Do handymen count? What about landlords who repair their own properties? The feebate scheme may be stupid or unnecessary for ETS-related reasons, but at least it is sensible in avoiding the necessity for a bunch of additional regulations about who is exempt.

The second issue is, once some defined group is exempted from the import tax, what stops them from buying an imported petrol or diesel vehicle, then selling it on the local second-hand market? There's no proposal to tax petrol or diesel vehicles, other than those that are newly imported. So, second-hand cars sold locally do not attract the tax. You would need another set of rules to govern how long a tax-exempt purchaser would have to hold onto their vehicle before reselling it. But it gets worse. What would then stop a farmer (or hobby farmer with a lifestyle block) from buying a bunch of Hiluxes, parking them up in a paddock, waiting out the no-resale period, then selling them, avoiding the tax, and pocketing a nice profit? Again, the feebate scheme may be stupid or unnecessary for ETS-related reasons, but at least it doesn't need to have a bunch of secondary rules to deal with people profiting from their exemptions.

The feebate scheme may be stupid or unnecessary, but at least it is not as stupid as it could get. The last thing we need is a feebate scheme that you could drive an SUV through. Literally.

Public toilets and unintended consequences

In my ECONS102 class last week, we spent a bit of time considering unintended consequences. Sometimes, a policy unintentionally creates exactly the opposite effect to what was intended, such as this example I wrote about in 2015:

The government was concerned about the number of snakes running wild (er... slithering wild) in the streets of Delhi. So, they struck on a plan to rid the city of snakes. By paying a bounty for every cobra killed, the ordinary people would kill the cobras and the rampant snakes would be less of a problem. And so it proved. Except, some enterprising locals realised that it was pretty dangerous to catch and kill wild cobras, and a lot safer and more profitable to simply breed their own cobras and kill their more docile ones to claim the bounty. Naturally, the government eventually became aware of this practice, and stopped paying the bounty. The local cobra breeders, now without a reason to keep their cobras, released them. Which made the problem of wild cobras even worse.

Now, if you've ever been to the U.S., then you may have noticed the absence of public toilets. Unlike New Zealand and many other countries, there are simply no public toilets to be found. If you are caught short, you need to find a Starbucks or McDonalds or the like. Why is that? John Cochrane provided the answer yesterday:

Answer: Because it's illegal to charge for toilets. There were once abundant public toilets in America, as there are in many other countries. And you pay a small fee to use them. A small fee that everyone in Nicholas' stories would have been delighted to pay...

The absence of pay toilets is in fact a delightful encapsulation of so much that is wrong with American economic policy these days. Activists decide free toilets are a human right, and successfully campaign to ban pay toilets. For a while, existing toilets are free. Within months, upkeep is ignored, attendants disappear, and the toilets become disgusting,  dysfunctional and dangerous. Within a few years there are no toilets at all. Fast forward, and we have a resurgence of medieval diseases that come from people relieving themselves al fresco.

Cochrane's post is worth reading in its entirety. His blog is called The Grumpy Economist, and you can see why. Anyway, the point is that, in an effort to make public toilets more affordable and accessible, by making them all free, government policy eliminated the incentives to provide public toilets at all, meaning that none are now provided. Classic unintended consequences.

[HT: Marginal Revolution]

The health impacts of criminalising prostitution

I've previously written about the positive impacts of decriminalising prostitution (see here and here). However, most studies on this have been conducted in developed countries. In a new article published in the Quarterly Journal of Economics (possibly ungated earlier version here), Lisa Cameron (University of Melbourne, and no relation to me), Jennifer Seager (George Washington University), and Manisha Shah (UCLA) look at a peculiar case in Indonesia. As they explain:

The study area encompasses the districts of Malang, Pasuruan, and Batu in East Java, Indonesia... As is common throughout Indonesia, sex work in East Java occurs in both formal worksites (i.e., brothels) and informal worksites (i.e., the street)...

On July 11, 2014, the Malang district government announced that on November 28, 2014, it would close all formal sex worksites within the district as a “birthday present” to Malang... 

The announcement of the worksite closures was unanticipated. To the best of our knowledge, when we conducted baseline surveys in February–March 2014, there was no expectation of the closures. In fact, we had considered conducting the research (which was originally planned to be a randomized controlled trial offering micro-savings products to sex workers) in Surabaya but had been advised by the community-based organization we were working with, whose main mission is to work with sex workers in the Malang area, that worksite closures were possible in Surabaya. We specifically selected Malang as our study site because worksite closures were not anticipated.

I guess this was a case of the researchers making the best of a bad situation. Cameron et al. started out intending to research one thing, but ended up researching something completely different (incidentally, there's been a lot of that over the last year, due to coronavirus lockdowns or just the pandemic generally).

Anyway, Cameron et al. had collected some baseline data before the criminalisation, and collected data after the criminalisation, allowing them to apply a difference-in-differences analysis. Essentially, this involves comparing the difference between Malang and the other two districts before criminalisation, with the difference between Malang and the other two districts after criminalisation. They find that:

...criminalizing sex work increases STI rates among sex workers (measured using biological test results) by 27.3 percentage points, or 58%, from baseline. Using data from both clients and sex workers, we show that the main mechanism driving the increase in STI [sexually transmitted infection] rates is a decrease in access to condoms, an increase in condom prices, and an increase in noncondom sex. Sex workers are more than 50 percentage points less likely to be able to produce a condom when asked by survey enumerators at endline, and clients report a 61 percentage point increase in noncondom sex.

None of that is good, and it extends to those that left sex work as well, and their children:

Using data obtained from tracking women who left sex work postcriminalization, we show that those who leave sex work because of criminalization have lower earnings than those who leave by choice. In addition, children of women from criminalized worksites are adversely affected—they have less money for school and are more likely to work to supplement household income.

The criminalisation also impacts the general population:

...there is a statistically significant... increase in female reports of experiencing STI symptoms in the past three months. This is consistent with a scenario in which increased STI rates among sex workers at the criminalized worksites translate into higher STI rates among clients, who then pass these STIs on to their sexual partners.

The sex market was smaller as a result of criminalisation, which was the intention of the policy. However, the unintended consequences are severe. As Cameron et al. conclude:

...from a health perspective, criminalization of sex work is likely to be counterproductive.

Indeed.

[HT: Marginal Revolution, for the working paper version last year]

Read more:

• Red light districts and house prices
• Legalised prostitution and crime