Carbon taxes for all

Well, I don’t always agree with Gary Becker but he has a nice post on carbon taxes and why they could be George W Bush’s friend. He says

A tax on carbon emissions from business and household production would not only help reduce global warming–by how much is still controversial–but it would also lower the world prices of these fuels through reducing the demand for fossil fuels. Lower prices would cut the revenues received by Middle Eastern states from the sale of oil and natural gas. This is why a carbon tax receives support from many environmentalists and national security advocates.

National security isn’t such a big deal for NZ when it comes to energy supply, but it’s nice to know that even conservative economic commentators in the US are starting to favour emissions taxation. Hopefully the NZ government doesn’t need quite as much prodding as Dubya before it implements a decent scheme to meet our Kyoto obligations.

Fast food and health standards

As I was waiting in line to grab some McDonalds before going to see the latest Harry Potter movie I got to thinking about why the line was so long.  In fact, I got to thinking about why, when there are other perfectly good foods around the food court, was half the place lining up to grab some greasy McDonalds.

I realized the best way to analyze this is to think about my own behaviour.   Now I virtually never go to the McDonalds in the food court (that day I just had a hankering for a Boss burger), I usually go to the Chinese place.  However, when I’m in some foreign land (such as Hamilton), I always go for McDonalds or Subway.

When I go to buy food in a foodcourt in Wellington, I know I will be going back there again soon, so their is an incentive for me to experiment, find out what I like and then stick to that.  Simply put, its a repeated game.  When I arrive at a foodcourt in Hamilton, this is a one-off experience, I have no intention to come back to the city of the future.  So this is a one shot game.

Now, franchises like McDonalds offer a standardized product, I know what I will get.  The rest of the shops could sell anything.  As a result, McDonalds is the less risky option, there is less variance in the quality of McDonalds meals.  So even if the average food court meal is better, as long as i’m risk averse there is scope for me to grab MiccyD’s.  If it is a repeated game, then experimenting gives me information for future periods, as I know that some of the food is better than McD’s food, I’ll try things until I hit something (or a bundle of foods) I like, then I will repeatedly consume it (or repeatedly consume some time varying combination of fast foods based which is dependent on previous consumption).

By virtue of this blog I have to bring this rant back to government.   I think I can do that with health standards.  By setting and enforcing health standards the government cuts out the worst foodcourt places, and as a result lifts the average standard and reduces the variance/risk of eating at other stores.  Now even if McD’s was within the health standards before these regulations, they will be forced to up the quality of their product, or risk losing their one off customers.

So govt. health standards lift the standard of franchises, and reduce the risk of getting killed when you go for a meal.  That sounds like positive government intervention to me.

There’s taxation and then there’s taxation

Matt posted recently about environmental taxes on petrol. The
comments section contains some discussion about whether taxation
is a good idea or whether it’s just bureaucratic meddling. This
sort of politico-vs-economist tax argument inevitably involves
people talking straight past each other so perhaps this is a good
time to discuss what we mean when we say `taxation’.

When libertarian types talk about taxation they mean
distortionary, revenue-gathering taxes that form the majority of
the government’s taxation scheme. When Matt (and pretty much all
economists) gets his tax-’em-harder hat on, he’s referring to
corrective Pigouvian taxes that remove distortionary
externalities. Unfortunately, the government doesn’t seem to
listen to economists much when it comes to designing their
taxation mechanisms: rather than taxing methane emissions and
other serious externalities they tax income. Hmmmm…

Telecom separation

So Telecom is to be operationally separated. To prevent the issue of double marginalization, the commerce commission is going to regulate the price set in the access market.

Do you think this is the correct way to regulate the access network.

While I believe it will lead to more competition in the wholesale and retail markets, I can understand the argument that states that this type of regulation will lead to lower investment (as firms invest until MB=MC, if the marginal cost of investment increases in the amount of investment, then lowering the price will lower the marginal benefit, and lead to a less investment.) I hear the government has a plan to improve Telecoms incentive to invest, does anyone know what it is? If so, do you think it will work?

The smoking debate redux

For the first substantive post on this blog I’ve gone with a topic
that’s an oldie (for NZers), but a goodie: banning smoking in public
places. Britain’s currently going through the growing pains of a
conversion to smoke-free public places and economist Tim Harford
thinks that the economics of the change just don’t stack up. He pulls
out the well-worn argument that if people wanted non-smoking pubs then
the market would have provided them. Well, game theory tells us that
the answer to this riddle is really quite straightforward.

Smokers want to be able to relax in a pub at night with a beer in one
hand and a cigarette in the other, surrounded by friends. Non-smokers
want exactly the same but minus the cigarette. This is a clear example
of a co-ordination game between smokers and non-smokers. Both are
better off when they go to the same pub whether that be a smoking or a
non-smoking pub. No non-smoker wants to alienate his smoking mates by
heading off to a separate pub and the same is likely true for
smokers. The fact that we’re currently co-ordinated on an equilibrium
where people go to smoking pubs rather than non-smoking pubs is an
artifact of the historical norm in favour of smoking. Thus, the
lack of non-smoking pubs shows that nobody individually has an
incentive to deviate. What it doesn’t show is that this outcome is
best or even that it is preferred by everybody.

This is where the government comes in: they must decide whether it
is welfare improving to pass laws that re-organise society around a
non-smoking norm. Certainly the non-smokers will be better off, but
what about the smokers? They may well be worse off, but not by
as much as they would like you to think.

Plenty of research on time inconsistency has shown that smokers
themselves can be made better off if the government forces them to
smoke less (see Gruber and Koszegi’s work for instance). Thus, some
reduction in their smoking is welfare improving for them as well as
for the non-smokers. Does the decreased reduction in smokers’ utility
mean that their losses are outweighed by the non-smokers’ gains? That
is a matter for empirical research, but it is likely that the British
government’s actions will be far less traumatic for British smokers
than Mr Harford anticipates.