The impact of the world fertiliser market on the fertiliser market in New Zealand

The New Zealand Herald reported today:

Fertiliser prices - a key input cost for farmers - are on their way up.

The international price for DAP - the product that combines ammonium and phosphate - have been bouncing off a low point as major world producers slowly respond to increased demand.

"It's been low for a while and at those low prices, manufacturers around the world - the big players - probably were not making a lot of money," a spokesman for fertiliser co-op Ravensdown said.

"So we are seeing a controlled, disciplined rise, because demand tends to go up in places like Brazil and India at this time of year," he said.

In the world market for fertiliser, there has been an increase in demand. This is shown in the diagram below. The market started at equilibrium with the price PW0 and the quantity of fertiliser traded was Q0. The increase in demand from D0 to D1 leads to a new equilibrium, with a higher price (PW1), and a greater quantity traded (Q1).

Now consider the impact on the New Zealand market. New Zealand is an importing country. That means that the world price of fertiliser is below the domestic equilibrium price, as shown in the diagram below. The original world price, PW0, is below the equilibrium price PA. At that price, domestic producers of fertiliser will only supply QS0 fertiliser, and domestic consumers of fertiliser (i.e. farmers) will demand QD0 fertiliser. The difference between QD0 and QS0 is the quantity of fertiliser imported (the red line M0). When the world price increases from PW0 to PW1, farmers face a higher import price and will demand less (QD1), while domestic producers of fertiliser find it profitable to produce more, and increase production to QS1. The quantity of fertiliser imported declines (to the blue line M1).

The Herald article notes the price changes in both the international and domestic markets:

Over the month or so, DAP prices have lifted to US$350 a tonne from $300/tonne.

Ravensdown has lifted its price to around NZ$780 a tonne from around $750/tonne in August.

The unintended consequence of child safety seat laws on fertility

Since the 1970s, child safety seats have been made mandatory in most western countries. And since then, the age at which children are allowed to 'graduate' from a safety seat to wearing a seat belt without the safety seat has only increased. That creates a problem if you have a large family, because mid-sized and smaller cars are simply not large enough to fit more than two safety seats in the back. That places an additional cost on families that want to grow beyond two children, since they would need a larger vehicle such as a people-mover or minivan. That significantly increases the cost of having a third small child, so a reasonable question is, have these child safety seat laws affected fertility rates?

That is the question that this new working paper by Jordan Nickerson (MIT) and David Solomon (Boston College) seeks to answer. They use data from the U.S. Census (1990 and 2000) and the American Community Survey (2000-2017), and construct a retrospective panel of women aged 18-35 based on their age and the ages of their children at the time of the survey. That results in nearly 70 million female-year observations. Using that dataset, they then look at the effect of child safety seat laws on the probability of a woman having a third child, when they already have two children that would need child safety seats. They find that:

...when a woman has two children below the car seat age, her chances of giving birth that year decline by 0.73 percentage points. This represents a large decline, as the probability of giving birth for a woman age 18-35 with two children already is 9.36% in our sample.

Of course, this is correlation rather than causation, but Nickerson and Solomon then try to exclude other explanations, showing that:

...we do not find significant effects of car seat laws at other birth margins where car-seat-related crowding is unlikely to be an issue. For instance, there are no significant differences in birth rates when the woman has only one child total of car seat age, or two children total where only one child is required to be in a car seat.

And:

We find that the estimated effects are driven entirely by households with access to a car, consistent with car usage mattering directly. The effect is also concentrated in households where there is an adult male in the household, increasing the likelihood that both front seats are occupied by adults.

So, the results seem plausible. Fertility rates did decline as car safety seat laws expanded in scope. How many births were 'prevented' as a result? Using a simulation model based on their regressions, Nickerson and Solomon find that:

...switching from an eight-year-old mandate to a four-year-old mandate would result in the average woman having 0.0076 more children. In 2017, we estimate that car seat laws lead to a permanent reduction of approximately 8,000 births, and have prevented 145,000 births over our sample period, with 60% of this effect being since 2008. By contrast, if current laws had applied over the whole sample, we estimate there would have been a further 350,000 fewer births.

So, there may have been around 145,000 fewer children born as a result of these laws. How many lives did the car seat laws save? It appears the impact of the laws, if any, was slight, based on car crash data going back to 1975:

Using similar fixed effects specifications as our birth rate tests, we find that the estimated impact of car seat laws on deaths of children below age eight is miniscule. Our best estimates are that existing car seat mandates prevented 57 fatalities nationwide in 2017, with the most favorable estimates being 140 fatalities prevented. In the vast majority of specifications, we are unable to reject a null hypothesis of zero lives saved.

That leads to a really perverse comparison. Car seat laws may have saved thousands of children's lives, but at the same time prevented hundreds of thousands of children from being born in the first place. As Nickerson and Solomon note:

Ignoring the financial cost of purchasing safety seats, these estimates allow one to calculate the implied ratio of the value of a child’s life saved (conditional on them being born) versus the value of a child’s life prevented (children who might have been born, but were not). We estimate this ratio to be between 57 and 141.

Why would society be much more willing to save a child's life, in comparison to having a child born in the first place? Nickerson and Solomon first suggest endowment effects:

People’s acceptable price to acquire a good they don’t yet own is generally lower than their price to part with a good already in their possession, a phenomenon known as the endowment effect.

In this context, once a family is endowed with a child, they would be willing to pay a lot to lower the risk to that child's life, much more than they would have been willing to pay to add a child to their previously smaller family. This arises because of loss aversion. People value losses much more than equivalent gains - in this case, the loss of a child is a much greater negative for the family than is the positive of gaining a child.

That might explain part of the effect, but I think this is more likely:

There is also a large difference in salience between the dramatic event of a small child dying in a car crash, versus the largely unseen effect of a family who wanted another child deciding that the cost is too high.

This relates to Thomas Schelling's observation about the difference between the value of an 'identified life' and the value of a 'statistical life'. Schelling noted the paradox that a community that was willing to pay hundreds of thousands of dollars to save the life of a child that fell down a mineshaft, might simultaneously be unwilling to pay tens of thousands of dollars on highway improvements that would save on average one life every year. Once a child is born, they are an 'identified life', and paying to reduce risks to their life is a valuable expense. However, before a child is born they are simply a 'statistical life', since they only exist in the future with some probability.

Nickerson and Solomon also note that:

...policymakers do not understand the magnitude of the tradeoffs involved, and either overestimate the importance of safety seats on car crash fatalities, and/or underestimate the effects on fertility.

No doubt about that. It isn't the sort of trade-off that would occur to your average policy-maker. However, as Nickerson and Solomon conclude:

The current tradeoff is particularly perverse, given the sheer magnitude by which the unintended consequences exceed the intended consequences.

[HT: Marginal Revolution]

Recorded lectures and the 'laundry test'

Last month I wrote a post about new meta-analytic research that showed some positive effects of using video recordings as part of teaching, especially if they are supplementary to in-class learning. I noted towards the end of that post that:

The takeaway from this is that, at the minimum, once face-to-face teaching returns we should be routinely recording our existing lectures and making those recordings available to students. Teachers need to get over their fear that making recorded lectures available somehow makes students worse off, because it clearly is not the case.

However, some anxiety remains among teachers, that recording lecture material would lead class attendance to fall. I know that some are even more worried about that, now that students have had a taste of learning by video (although, I'd be inclined to argue exactly the opposite case!). What can you do to make students want to come to class?

I had meant to follow up that earlier post, because I had recently read this pretty insightful article by Dan Levy. In the article, Levy talks about the 'laundry test':

Where I teach, online classes generally get recorded; students can watch the recorded videos if they cannot attend the live session. I recently asked a student how she decided whether to engage in the live class or watch the recording later. Her answer was revealing. She said, “When I am trying to decide, I ask myself, ‘Is this a class I could attend while folding my laundry?’ If the answer is yes, I watch the recording. If the answer is no, I attend the live session.”

While I think that, in general, we should design both synchronous and asynchronous experiences that students find so engaging that they cannot fold the laundry at the same time, I think the spirit of this question might help inform your decision of what to reserve for asynchronous learning.

While Levy is writing about teaching online, I believe the same principles apply to teaching face-to-face. If a lecture session is not interactive and the students could basically be sitting in class folding laundry, then it's probably time to reconsider your approach. I break my lectures up with exercises that make the students put into practice what they are learning immediately. I run short illustrative experiments or collect data from the class to illustrate points in my ECONS102 class. It would be difficult for students to participate in the exercises or experiments effectively and fold laundry at the same time. And it provides a clear value-added benefit over a static lecture recording (and that's why I was so dismayed at the decision not to have face-to-face lectures this trimester).

Anyway, Levy's article provides some great advice for those who are considering taking a blended learning approach. With lessons also for those who are not doing so.

What's behind the decrease in support for free trade?

In my ECONS102 class, we cover international trade and globalisation, but we don't really go into the globalisation debate any more (a consequence of squeezing more cool content into the paper, is that some things get squeezed out). However, we do still cover the arguments for and against free trade. And it would appear, based on recent experience, that the (increasingly populist) arguments against free trade are getting louder. A reasonable question then, is, what is behind the decrease in support for free trade?

In a new article published in the European Journal of Political Economy (ungated earlier version here), Philipp Harms (Johannes Gutenberg University Mainz) and Jakob Schwab (German Development Institute) try to answer that question. They use data from the International Social Survey Programme (ISSP) waves in 2003 and 2013, i.e. before and after the Global Financial Crisis. The data they use covers 21 countries, and includes over 37,000 observations. The key variable is based on the answer to the following question:

“How much do you agree or disagree with the following statement? ‘[My country] should limit the import of foreign products in order to protect its national economy.’”

Respondents were asked to answer on a scale from “Agree strongly” (=1) to “Disagree strongly” (=5). We capture this answer in the variable IMP_PHIL, which takes a value of 1 if a respondent disagrees or strongly disagrees with the statement (i.e. if he or she gives the answer 4 or 5). Over the entire sample, this applies to roughly 40% of the population.

So, given that 40% of people disagree or disagree strongly with that statement, there is substantial (but not majority) support for international trade in the sample. Harms and Schwab then use a regression model to find individual-level and country-level factors associated with support for international trade, and find that:

...a lower Age, higher education (Degree), a more successful career (WrkSup), as well as individual prosperity (RelIncome) induce respondents to support international trade, since all these features enable individuals to reap the benefits of globalization...

On top of these preconditions for economic success, a generally open attitude towards other countries (Cosmopol) is also positively correlated with the likelihood that an individual welcomes foreign goods imports... Moreover... in most economies, the average attitude towards international trade changed significantly between 2003 and 2013. More specifically, we observe that the average support for international trade decreased in twelve out of 21 countries, while it increased in six countries – interestingly, including the United Kingdom and the United States – and did not exhibit significant changes in three countries.

They then go on to tease out the factors associated with the change in support at the country level, and find that:

...a higher (lower) GDP growth rate significantly raised (reduced) support for international trade. The second variable we use to capture countries’ experience during the global financial crisis is the change in a country’s stock market index between its peak (usually June 2008) and its trough (usually March 2009). We expect larger collapses to drag down the support for trade, i.e. a positive sign of the variable StockMarket. The results... support this hypothesis. The third variable we used for Crisis-Experience... was the change in a country’s unemployment rate between 2008 and 2009... the coefficient of CrisisUnemp has the expected negative sign, but that the effect is not statistically significant. By contrast, the duration of the crisis (CrisisDuration) has a significantly negative effect... the change of a country’s Gini coefficient between 2003 and 2013 (ChangeGini, in percentage points) had a significantly negative effect on the support for international trade...

In other words, countries that generally had a worse experience of the Global Financial Crisis (lower GDP growth rate, larger falls in the stock market, and greater increases in inequality, but not changes in the unemployment rate) experienced greater reductions in support for international trade.

Finally, allowing the effects of various characteristics to change over time in their analysis, Harms and Schwab conclude that:

...our findings contradict the standard narrative that the increasing sentiment against international trade predominantly reflects the anger of those groups whose wages and jobs were negatively affected by international competition. By contrast, it is rather the eroding enthusiasm of the elites than the depression of the deprived, which contributed to the declining support for international trade: in 2013, youth, education and income were less likely to make individuals respond explicitly in favor of international trade than in 2003.

Those results are the most surprising aspect of the paper. As Harms and Schwab note, it contradicts the standard narrative.

It feels like there is more important work to be done in this space. Especially, I wouldn't be surprised if there was a common explanation for both the higher-inequality-lower-support relationship and the decline in elite support for trade. Hopefully, further research will help us understand this a bit more.