Sex, Drugs and Economics

Friday, 10 May 2019

Evidence that the supply of methamphetamine is increasing

Consider the market for methamphetamine. If you are targeting police resources at the suppliers of methamphetamine, you would expect to see an increase in the street price of methamphetamine. This is because the costs of supplying have increased (once you factor in the higher costs associated with the greater risk of being caught, higher penalties, or more effort spent by sellers to try and avoid detection by the police). This is illustrated in the diagram below. The market is initially in equilibrium with the price P0, and Q0 methamphetamine is traded (and consumed). The supply decreases from S0 to S1, and so the equilibrium price increases from P0 to P1, and the quantity of methamphetamine is traded (and consumed) falls from Q0 to Q1.

An increase in policing causes a decrease in the supply of methamphetamine, and an increase in the street price. So, if we observed an increase in the street price of methamphetamine, could we safely conclude that enforcement efforts are successful, as was claimed in 2011? No, because a decrease in supply is not the only possible cause for an increase in price. Consider the market diagram below. The market is initially in equilibrium with the price P0, and Q0 methamphetamine is traded (and consumed). The demand increases from D0 to D2, and so the equilibrium price increases from P0 to P2, and the quantity of methamphetamine is traded (and consumed) increases from Q0 to Q2.

So, you can see that we would observe an increase in the street price if supply decreases, or if demand increases (or indeed if both of those things happened at the same time). However, in only one of those situations does the consumption of methamphetamine decrease, and that is what you probably wanted to know. Unfortunately, back in 2011 the data on consumption wasn't so good. As the article linked above notes, the number of border seizures increased. However, that doesn't by itself suggest that quantity consumed has decreased, because perhaps there was more getting through without being detected as well.

Fortunately, now we can start to get at an answer to what is going on in the market for methamphetamine. As the New Zealand Herald reported a couple of weeks ago, there are new data available:

New Zealanders spend nearly $1.4 million cash on methamphetamine every single day, according to police analysis of three months of drug testing of wastewater.

Described by scientists as "one large urine test", the wastewater testing started with three sites in 2016 - Whangarei, Auckland's North Shore and Christchurch - but was rolled out nationwide last November.

The ESR testing at 38 sites now captures 80 per cent of the population and officials hope it will paint a clearer picture of New Zealand's drug habits.

An average of 16kg of methamphetamine has been consumed each week in November, December and January according to the preliminary results released today.

Yes, you read that right. Toilet water is being tested for drugs, and has to be more accurate than survey-based data (since people may not answer truthfully). What does this new data say about consumption changes over time? The article notes that:

Wastewater testing shows methamphetamine consumption has increased since 2016, said Detective Sergeant Daniel Lyons from the National Drug Intelligence Bureau, a joint team with Customs and the Ministry of Health.

So, the quantity of methamphetamine consumed (and traded) has increased over time. As Eric Crampton notes, the price of methamphetamine has decreased slightly since 2008 (and is lower than the price quoted in the Voxy article as well). If we extrapolate and say that the increase in quantity dates back to 2010, then an increase in quantity and a decrease in price is consistent with an increase in supply, not a decrease in supply (or at least, an increase in supply that is larger than any change in demand). Essentially, this is the opposite of the first diagram from earlier in this post.

Is that realistic? In a different post, Eric Crampton notes:

...imagine that the police just kinda gave up on meth. They stopped reporting on progress on meth back in 2015, when it was looking pretty obvious that the drugs had won the drug war. If they gave up, then it would be cheaper to cook meth from pseudoephedrine now than it was in 2008, so that product could be delivered at a lower price point. Alternatively, if there have been tech developments in small-batch cooking that have radically lowered the cost of production in that sector since 2008, then 2008 prices may not be the best guide.

Both of those situations (less policing, and lower costs of production) are consistent with an increase in supply.

Wednesday, 8 May 2019

Why study economics? Uber edition...

I've written a large (and growing) number of posts about opportunities for economics graduates in tech companies (see the list at the end of this post). But what do those graduates do for the tech firms? This PBS New Hour video explains what economists do at Uber:

Like that video, most of the discussion you see online is about jobs for economics PhD graduates. But in my experience there's plenty of opportunity for students with an economics undergraduate major. Also, there's plenty of value for students who are not doing an economics major (or minor) to pick up some useful skills by taking one or more economics papers. Employers value highly the types of skills that economics teaches, including the ability to ask critical questions, to work with data, and to understand human behaviour.

[HT: Marginal Revolution]

Book review: Dollars and Sex

I just finished reading Marina Adshade's 2013 book, Dollars and Sex. The subtitle is "How Economics Influences Sex and Love", and Adshade essentially summarises a large number of research papers that use economic theory to investigate topics related to sex and love. The genesis of the book, apparently, was Adshade's teaching of a course on "the economics of sex and love". Probably we need more university courses like that!

The book is essentially an interesting collection of stories and research summaries (including, for instance, research papers that I have previously blogged about here and here and here). In reading the book, you'll learn why college students have less sex (on average) than non-college students of the same age (which seems hard to believe if you're a university student, but is supported by evidence!). You'll also find out why Bill Gates doesn't have a harem, despite having enough wealth and income to support many wives. And about the economics of infidelity (which references research by Bruce Elmslie, who was a visitor at Waikato some years back), where Adshade writes:

Infidelity is an economic story, but not for the reason you might have expected - that wealthy men are the most likely to be unfaithful to their wives - but because the decision to have, or not have, extramarital sex is the solution to a cost-benefit problem. The costs in this story are a function of several economic factors, including lost income in the case of divorce, while the benefits are, for the most part, biological.

I found the book to be a good read, but there were some surprising omissions and missed opportunities. For instance, in the section on marital infidelity, there was no mention of game theory. Even though Adshade talks about bargaining power within the marriage in several places (it is a recurrent theme in the book), it seems to me that an appropriate framework in several places includes some consideration of the strategic interactions of partners (i.e. game theory).

Also, in the section on online dating, there is no mention of adverse selection. Perhaps Adshade is taking a similar view to Paul Oyer in his book Everything I Ever Needed to Know about Economics I Learned from Online Dating (which I reviewed here), but it is difficult to tell. In my (brief) experience with online dating, adverse selection was a serious problem (and if you want to know more about adverse selection in online dating, read this post from 2015).

Adshade obviously takes a broad view of what economics can help us to understand (as do I!). However, at one point she notes that:

...economic inquiry has its limits, and explaining religious doctrine is not a bad place to draw the line.

The counterargument to that is, of course, that explaining religious doctrine using economics is exactly one of the things that Peter Leeson does (see my review of his book, WTF?! An Economic Tour of the Weird). Despite those issues, this is still a good book, and an interesting read for those looking slightly 'off-beat' applications of economics (of whom, I am one). In that case, it is a recommended read.

Thursday, 2 May 2019

Waikato is #1 in PBRF for economics

The government's latest Performance Based Research Fund results are out (you can find them here). This is the research assessment exercise that all universities go through every six years or so, which gives a ranking, by discipline, in terms of research performance. Every researcher receives a ranking (A, B, C(NE), C, or R), where an A is a world-class researcher, and an R is research inactive (NE stands for New and Emerging - basically, researchers who are newly-minted PhDs).

Here's a summary of the results for the universities (proportionally, and excluding R grades, which are not reported):

The darker blue parts of the bars represent higher PBRF grades. As you can see, in terms of the proportion of A-ranked researchers, Waikato is top (19.2% of researchers at Waikato are ranked A), and Otago is second (18.2%). In the proportion of A-ranked and B-ranked researchers, Waikato is also top (83.4% of researchers at Waikato are ranked A or B), and daylight is second (or Otago is second, if you prefer, at 71.9%).

In raw numbers, Waikato was second only to Otago in terms of the absolute number of A-ranked researchers (2.5 full-time equivalent A-ranked researchers at Waikato, vs. 3 at Otago). In terms of the number of A-ranked and B-ranked researchers combined, Waikato was third (11.02 FTE, behind Auckland with 13, and Otago with 12). But you have to remember that Waikato has a much smaller number of economists than either Auckland or Otago.

The take-away message is simple: Right now, you have a much higher chance of regularly interacting with top economics researchers by studying at Waikato than at any other university in New Zealand.

[Update]: Eric Crampton at Offsetting Behaviour has more on this topic.