This week in research #26

Here's what caught my eye in research over the past week:

• Habla et al. (open access) ask research participants in Sweden how they would like self‐driving cars to be programmed for dilemma situations (essentially choosing between harming pedestrians or passengers), and find that at the margin, the average respondent values the lives of passengers and pedestrians equally when both groups are homogeneous and no group is to blame for the dilemma, but that they value the lives of passengers more when the pedestrians violate a social norm, and less when the pedestrians are children
• Brown et al. (with ungated earlier version here) conduct a new meta-analysis of 607 loss aversion estimates, finding that people are loss averse on average, but somewhat less loss averse than assumed in previous literature (the debate continues, see here and here for more)
• Franceschi et al. (open access) provide a systematic review of the literature on the determinants of the value of football (soccer) players

Why many consumers will switch from orange juice to mandarin juice, and be paying more for it

The Financial Times reported last week (probably paywalled, in which case try this article from The Conversation on the same topic):

Orange juice prices have soared to record highs, driven by bad weather and disease in Brazil, the world’s largest exporter, prompting manufacturers to explore whether they can use mandarins instead to make the drink...

The long-term solution to a dearth of oranges, according to [president of the International Fruit and Vegetable Juice Association, Kees] Cools, might be to make orange juice from mandarins, whose trees are more resilient to climate change in growing regions...

The industry is already experimenting. In Japan, which normally imports 90 per cent of its orange juice, mostly from fruit grown in Brazil, the supply crunch has been exacerbated by a weak yen, pushing up import costs further. Seven & i Holdings, the owner of supermarket chain 7-Eleven, has turned to the country’s domestic supply of mandarins, launching a mandarin and orange juice product.

The effects of poor weather and citrus greening disease in Brazil on the markets for oranges and mandarins can be easily analysed using the supply and demand model (from my ECONS101 or ECONS102 classes). The effect on the market for oranges is shown in the diagram below. The market was initially in equilibrium, where demand D0 meets supply S0, with a price of P0 and a quantity of oranges traded of Q0. Bad weather and disease reduce the orange harvest, decreasing supply to S1. This increases the equilibrium price of oranges to P1, and reduces the quantity of oranges traded to Q1.

Now consider the market for mandarins. Mandarins are a substitute for oranges in the production of citrus juice. Since mandarins are now relatively cheaper than oranges, some juice producers will switch from making juice from oranges only, to a blend of oranges and mandarins. The effect is shown in the diagram below, where the mandarin market is initially in equilibrium with a price of PA, and a quantity of mandarins traded of QA. Producers switching to a blend of oranges and mandarins increases the demand for mandarins from DA to DB, increasing the equilibrium price of mandarins from PA to PB, and increasing the quantity of mandarins traded from QA to QB.

All of this might be bad news for orange and mandarin lovers, since the price of their favourite citrus fruits are likely to rise. Luckily, some of us have our own mandarin trees (and in fact, my family's tiny mandarin trees have been so laden with fruit this year, we've been giving them away!).

The consequences of low-quality alcohol licensing data

I've been meaning to post on this for a little while now. Back in April, Eric Crampton pointed to Police and the Medical Officer of Health using incorrect data on the number of licences in Wellington as part of their submissions opposing alcohol licences. Sadly, for those of us who know about the alcohol licensing data in New Zealand, this sort of outcome won't come as a surprise.

Current alcohol licence data is available for free from the Ministry of Justice website. However, the quality of that data is somewhat questionable. It doesn't take long to realise that there are problems. For example, I downloaded the latest data, and looked at Waikato District (which I know reasonably well, as I am a Commissioner of the District Licensing Committee there). Looking only at on-licences, McGinty's bar in Huntly appears in the list twice. Fortunately, it looks like that's the only duplicate in the Waikato data for on-licences, but it would not surprise me at all to find out that there are many duplicates for Wellington. So, simply getting the free data and counting the number of licences in that data is going to over-state the number of licences.

I think that this particular issue arises because, when a new licence is granted to new owners of an existing premises, the previous licence remains in the dataset until it expires. Once you know that it is an issue, identifying duplicates and removing them is straightforward (although not helped by the dataset having only street names and not street numbers in the address fields).

However, there is a bigger issue with the dataset. It is only updated when the local council updates the Alcohol Regulatory and Licensing Authority (ARLA, which is part of the Ministry of Justice). If the local council doesn't send updates very regularly (or at all), then the dataset can quickly get woefully out of date.

So, as one example, according to the latest dataset, there is only one licensed premise in the entirety of the South Taranaki District, and only two in the entirety of Waitaki District. Obviously, the data are incorrect there, and almost certainly because those districts are not updating ARLA when new licences are issued, or existing licences are renewed. So, the licences drop out of the dataset as they 'expire', when they are really being renewed and ARLA just doesn't know.

This is essentially the reason that I have hit 'pause' on research on alcohol outlets across the country as a whole (while maintaining some research in Hamilton City and South Auckland, where I know the quality of data is high). We really need a more reliable source of data than the dataset that ARLA maintains and makes available through the Ministry of Justice website. To be clear, I don't think it's ARLA's fault here at all. I strongly suspect that the dataset is sub-par because ARLA aren't being supported by the councils actually updating them, as is mandated by the Sale and Supply of Alcohol Act. A large part of the problem is probably that there doesn't appear to be any sanction against councils that fail to update ARLA.

One day, when I have a lot of spare resources (especially time, but also funding), we may be able to pull together a reasonable dataset that could avoid all of these problems. It would likely require a whole bunch of LGOIMA requests of councils that don't make their licensing decisions available online (again, as requires by the Sale and Supply of Alcohol Act), and a lot of effort. Some day.

In the meantime, we should spare a thought for those that want to use data on the number of alcohol licences (in Wellington, or anywhere else). The data that they are being asked to work with is not fit for purpose.

Michael Ryan on whether fighting inflation always leads to recession

We've just finished teaching the macroeconomics section of ECONS101 for this trimester (which brings our teaching to a close). The last week covers the Phillips Curve - the empirically-observed short-run trade-off between inflation and unemployment. The implication of the Phillips Curve is that if the government wants to reduce inflation, it can do so only at the cost of higher unemployment. And if the government wants to reduce unemployment, it can do so only at the cost of higher inflation.

My colleague Michael Ryan wrote on The Conversation recently on the topic of whether fighting inflation leads to recession. He wrote:

But are reductions in inflation inextricably linked to recessions?

New Zealand’s own economic history, it turns out, can give some guidance on this, and point to the risk factors within the country’s economic outlook...

Since 1961, New Zealand has experienced eight falls in inflation (disinflations) of four percentage points or more. (Disinflation refers to when inflation drops but remains positive, while “deflation” occurs when the inflation rate falls below zero).

This four percentage point drop is required for New Zealand’s inflation to reach the Reserve Bank’s target of 1-3%, down from the 7.3% recorded in the third quarter of 2022...

Then, after looking at New Zealand's history of periods of disinflation since 1960, he concludes that:

The message is a positive one: a fall in inflation does not necessarily have to be associated with a recession.

That was a bit of a relief to me, given that I wrote at the end of 2022 (also in The Conversation) that the Phillips Curve relationship is not causal, but that nevertheless:

...we can probably expect unemployment to move upwards as the Reserve Bank’s inflation battle continues. Not because lower inflation causes higher unemployment, but because worker and consumer expectations take time to reflect the likelihood of lower future inflation due to the Reserve Bank’s actions.

And since workers negotiate only infrequently with employers, there is an inevitable lag between inflation expectations changing and this being reflected in wages. Alas, for ordinary households, there is no quick and easy way out of this situation.

It is good that Michael Ryan and I are not inconsistent with each other! In theory at least, when the Reserve Bank manages to reduce inflation and unemployment is not negatively affected (that is, the economy doesn't enter recession), it's because inflation expectations have adjusted quickly. That is not always the case.