The Social Costs of Abstinence

Suppose that the correlation between one's sex life and earnings were actually causal, and worked from sex to income rather than the other way round. What correlation? This one:

Having an active sex life may make you happier, healthier and wealthier.
A new study reveals that people who had sex four or more times a week earned more money than their counterparts who weren't as lucky.
"People need to love and be loved (sexually and non-sexually) by others. In the absence of these elements, many people become susceptible to loneliness, social anxiety, and depression that could affect their working life," study author Nick Drydakis, an economics lecturer at Angila Ruskin University in Cambridge, England, said to CBSNews.com by email.
The discussion paper was published in July by the Institute for the Study of Labor,an economic research institution, in Germany.
Drydakis said he was interested in the topic because of previous studies linking sexual activity with extroversion traits (including being sociable, outgoing and energetic) and good health. In addition, good health has been linked to higher wages. A 2009 Brazilian study also showed a connection between higher wages and a more active sex life.

We can imagine some causal mechanisms that could run from sex to income. Happier people could be more productive at work. Or the cardiovascular benefits could yield better health and then consequently greater productivity. The authors do use a two-stage estimation procedure to try to isolate causality: they try to instrument for sexual activity, so it's at least more plausibly causal than much of what goes on in the public health literature.

If we follow the standard line in public health of assuming correlations are causal and in the "right" direction, and of ascribing as social all things private, we have to then worry about the social costs of abstinence. Those having too little sex earn less and so must be less productive. Those productivity costs reduce output and reduce tax revenue. And if it's working through a health channel, they also impose costs on the public health system.

The policy consequences are left as an exercise for the reader. But note that if you're recommending subsidies, you might need to offset the STD costs on the public health system via complementary regulations around health testing and public disclosure of who has what. This may seem like a violation of privacy, but can we really make rational decisions without perfect information?

[The should-be-obvious caveat: entire post subsumed within a "reductio" tag.]

Keeping it 18

New Zealand's reduction in the alcohol purchase age from 20 to 18 did not substantially worsen outcomes for youths. Alcohol consumption did not increase among 18 and 19 year olds subsequent to the change. Consumption, binge drinking, and accident rates among 15-17 year olds seems to have fallen since the reduction in the purchase age as well.

Stefan Boes and Steven Stillman's paper using regression discontinuity design and difference-in-difference measures on the alcohol purchase age, previewed here, is now up as an IZA working paper. Their abstract:

This paper examines the impact of a reduction in the legal drinking age in New Zealand from 20 to 18 on alcohol use, and alcohol-related hospitalisations and vehicular accidents among teenagers. We use both a difference-in-differences approach and a regression discontinuity design (RDD) to examine the impact of the law change. Our main findings are that lowering the legal drinking age did not appear to have led to, on average, an increase in alcohol consumption or binge drinking among 15-17 or 18-19 year-olds. However, there is evidence that the law change led to a significant increase in alcohol-related hospital admission rates for 18-19 year-olds, as well as for 15-17 year-olds. While these increases are large in relative magnitude, they are small in the absolute number of affected teenagers. Finally, we find no evidence for an increase in alcohol-related vehicular accidents at the time of the law change for any teenagers. In an important methodological contribution, we show that one approach commonly used to estimate the impact of changing the legal drinking age on outcomes, an RDD that compares individuals just younger than the drinking age to those just older, has the potential to give misleading results. Overall, our results support the argument that the legal drinking age can be lowered without leading to large increases in detrimental outcomes for youth.

The difference-in-difference measures in particular show lowered consumption among 15-17 year olds.

Finer-grained data on traffic accidents showed no increase with the purchase age reduction. There were more youth hospital admissions for alcohol use disorders subsequent to the law change. But while the increase is large in percentage terms, the baseline risk is low. Boes and Stillman estimate an additional 2.2 to 3.4 alcohol use disorder hospital admissions per month among 15-17 year olds, 2.1 to 2.6 per month among 18-19 year olds, and 1.0 to 1.5 per month among 20-21 year olds in the period immediately following the law change. They note that seasonal variation in admission for flu and asthma are three and twenty times larger than the variation attributed to the reduction in the alcohol purchase age.

They also make an important point on method, and I thank Steven for having explained this one to me slowly; hopefully I've understood it properly. Now recall that they found no effect of the law change on traffic accidents: changing the alcohol purchase age from 20 to 18 did not increase the accident rate among youths. Nevertheless, results from a regression discontinuity design comparing accident rates among kids just under the alcohol purchase age with those just over the alcohol purchase age shows an increase in accidents on reaching the alcohol purchase age after the law change. Why could there be an effect in RDD but not overall? Either the RDD is picking up the effect of the alcohol purchase age on the cohort of inexperienced drinkers who change their behaviour on reaching 18 and experience worsened outcomes, or it's picking up a particular changed behaviour around the time of the birthday. We would have overestimated the effects on traffic accidents for 18-19 year olds by extrapolating from the discontinuity around the 18th birthday.

But, we only know this because New Zealand actually had the policy change so we can compare actual outcomes with those estimated by the RDD. Now, suppose you're in a country that hasn't reduced its drinking age and you want to estimate what the effect of decreasing the drinking age might be. If you ran an RDD looking at the effect of reaching the age of majority on traffic accidents, took the break around the birthday as being the effect of being able to drink, then extrapolated that effect back across the cohort of younger drinkers who would be eligible to drink under a different minimum legal drinking age, you could pretty easily be overestimating the likely effect of a real change in the alcohol purchase age. The RDD picks up the effect of reaching the legal drinking age rather than the effect that would obtain by lowering the legal drinking age.

They conclude:

Overall, our results support the argument being made by groups like Amethyst Initiative and Choose Responsibility (see http://www.choose responsibility.org/proposal/) that the legal drinking age can be lowered without leading to large increases in detrimental outcomes for youth. The current age limit of 21 in the US is higher than in Canada, Mexico and most western European countries. The arguments against lowering the drinking age typically include the idea that even, if a new steady-state with a lower drinking age might be beneficial, the transition to that new steady-state might be very costly. The evidence in our paper from a country with drinking habits very similar to the US suggests that this does not have to be the case.

It is pretty tough to maintain a position that youth drinking is any kind of worsening problem in New Zealand.

Earlier this month, Auckland University's Youth Survey came out. Binge drinking rates among high school students have almost halved since 2001. The NZ Herald highlighted a few other trends from the survey hardly consistent with any kind of growing youth crisis. David Farrar linked up the current survey numbers with prior year figures to show decreases in all measures of youth alcohol consumption.

Weak instruments are weak

More than a decade ago, back in the advanced econometrics course at George Mason, Thomas Stratmann taught us about the weak instruments problem. Looks like one of these was worse than I'd thought.

Suppose you wanted to know whether education affected earnings. And you saw that people with more education had higher incomes. But suppose that you also thought that people who were smarter (or more conscientious) would earn more regardless of education AND that those same people were more likely to select into more education. You then have an endogeneity problem: just running a wage regression with education on the right hand side doesn't really give you the effect of education on earnings. It tells you how much more those with more education earn compared to those with less education, but it's a total effect rather than a partial: it includes all the effect of selecting into more education as well as the effect of the education.

So, then, what to do? You need something that will affect the amount of education that somebody gets that isn't itself a predictor of income. Something exogenous to income that affects education. If you have that, you can use an instrumental variables approach to try to estimate the effect of education on income via the effect of the exogenous instrument on education.

And the typical early example is the old Angrist and Krueger measure of quarter of birth as instrument for education. Compulsory schooling laws in the US meant you couldn't quit school until you were some minimum age. Quarter of birth could then affect how much schooling you got: those who turned 16 early in the school year could drop out earlier than those who turned 16 later in the school year.

Then Prof Stratmann told us about the weak instruments problem. Quarter of birth is only really weakly correlated with education - it explains very little of actual differences in education levels. And so bad stuff can happen in the estimation.

So we've known for a while that quarter of birth might not be a great instrument. But it would still get used. Bound, Jaeger and Baker complained about it in 1995; I think we went through their critique in our 1999 metrics class. Jaeger got angry in 2009 when quarter of birth was still being cited as a decent instrument.

Fast-forward to today's news from the Freakonomics blog: Buckles and Hungerman have shown that season of birth is endogenous. (gated, ungated) Ka-boom.

Season of birth is associated with later outcomes; what drives this association remains unclear. We consider a new explanation: variation in maternal characteristics. We document large changes in maternal characteristics for births throughout the year; winter births are disproportionately realized by teenagers and the unmarried. Family background controls explain nearly half of season-of-birth’s relation to adult outcomes. Seasonality in maternal characteristics is driven by women trying to conceive; we find no seasonality among unwanted births. Prior seasonality-in-fertility research focuses on conditions at conception; here, expected conditions at birth drive variation in maternal characteristics, while conditions at conception are unimportant.

If different types of parents select different seasons in which to have kids, then there goes the exclusion restriction: IV just plum don't work right if the instrument affects outcomes via channels other than the one specified. I think that Dubner at Freakonomics understates the importance here when he says the finding's interesting because so many studies have found an association between birth month and later outcomes: the importance is rather that we have something much more serious than a weak instruments problem when using quarter of birth to get around endogeneity problems in estimating the effect of schooling on income.

@KevinMilligan points out that folks have moved toward regression discontinuity design for this kind of work anyway.

@colbycosh Certaily hurts QofBirth IVs, but most stuff now uses tight discontinuities. Season of birth effects no prob if trend smoothly.
— Kevin Milligan (@kevinmilligan) August 12, 2013

Agreed! But I still wonder whether loud cries of "WE TOLD YOU SO!" were coming from Jaeger, Bound or Baker's offices when the Buckles and Hungerman paper came out....

Update: I'm going to give the last word on this one to Dr. Phil:

Finding a solid IV is a grueling task. Make it a little more fun by turning it into a scavenger hunt for the kids.
— Dr.Phil of Economics (@DrPhilofEconomi) August 13, 2013

In which we welcome Shamubeel Eaqub and revisit an old chestnut

The excellent Shamubeel Eaqub is now blogging as part of the team over at TheVisible Hand of Economics. Shamubeel has been a regular commenter at TVHE and is often quoted in the media; it is great to see him now blogging. Eric linked to Shamubeel’s first post yesterday in his Monday round-up.

Shamubeel was commenting on this story about National’s latest housing policy, in which “the number of first home buyers eligible for KiwiSaver deposit subsidies will double”, but buyers “will have to save a bigger deposit before they qualify for Government assistance”. Again, I find myself asking, What is it about housing policy that leads to people forgetting basic economic principles? The two quotes that jumped out at me were the following:

"Key said the requirement for a bigger deposit was necessary to avoid throwing fuel on an already overheated housing market in Auckland."

And David Shearer’s

"I am also determined to reduce speculation-driven demand in our housing market. Labour will restrict sales to overseas speculators and clamp down on speculators here through a capital gains tax on houses bought over and above their own home."

So Shearer  wants to make housing more affordable partly through taxing it and partly through a policy that restricts the nationality of who can own a rental property but won’t affect the number of people wanting to live in houses or the number of houses available for living. I have discussed these ideas before (here and here) so won't belabour the point. But now Key wants to join the party by promising to make housing more affordable by simultaneously shifting the demand curve to the right and then shifting it back to the left to prevent price increases! For sheer internal inconsistency, you have to say that National’s policy takes the cake here.

To be fair to both parties, both are also offering solutions to act on the supply side as well. And both parties think the other’s policy is crazy, so they have that right as well. But it wouldn't it be great if we could get beyond these silly games and have the political discourse focus on real policies?

Monday roundup

I love that the NZ economics blogosphere is now large enough that I can now simply outsource parts of my thinking to others. Today's worthies:

Donal explains the changes to broadband pricing regulation over at Economics NZ. First some background: mobile call pricing has come down substantially consequent to a new competitor's entry. Next, some background on the current broadband regulatory structure and how prices are set for regulated access to Chorus's infrastructure. Donal promises more to come.

Bill Kaye-Blake notes historical pamphlets worrying about the indolence of the peasantry were they ever to accumulate too many resources, and draws the logical extension to current "cost of alcohol" kinds of studies calling it a cost to the state if one chooses inebriated leisure over labour. Work is a bad and leisure is a good!

James Zucollo notes that Netflix doesn't believe your star ratings. Instead it recommends films based on what you actually watch. Expressive preferences differ from revealed preference. That's why economists trust the latter over the former whenever available, and are skeptical about surveys even when revealed preference measures aren't available.

Finally, Shamubeel Eaqub blogs at TVHE on National's policy in support of first-home buyers. Recall that RBNZ is initiating LVR regulations to prevent banks from taking on too many highly leveraged mortgages; they think that banks' asset sheets take on too much housing price risk. This will necessarily fall hardest on first-home buyers who cannot use the proceeds of the sale of their first home as deposit towards their next home. The National Party's proposed plan lets Kiwisaver participants use more of their dedicated retirement savings towards their first home. While this will push up housing prices where housing supply is pretty inelastic, it shouldn't heighten any of the risks that RBNZ is worried about under LVR: it's still a real deposit, and so it's less likely that banks wind up in the negative on foreclosing. The part that's a problem is instead the expansion of the Welcome home Loans Scheme, under which the government apparently underwrites loans for home buyers, who have to come up with only a 10% deposit. I can't see how this part doesn't cut against RBNZ's LVR policy except inasmuch as it's somewhat limited in total coverage: the Fairfax story says they're expanding from 850 loans per year to 2500. 

Reader mailbag: censorship edition

Loyal reader Lliam Munro sends me the following:

Hi, Eric.
I know you periodically blog about censorship so I thought I’d alert you to this in case you’d not seen it.

http://www.stuff.co.nz/business/industries/9018880/Retailer-fined-over-banned-movies 

I wondered what sort of movie would get banned in NZ so checked IMDB for the two films that generated the fine, which were Megan Is Missing and I Spit on Your Grave.

Without debating the artistic merits of the films, neither of which score very well on IMDB, I did think it noteworthy that one of the banned films Megan Is Missing, which is apparently a found footage film about two girls being murdered by a psycho they meet online, is endorsed by a father whose daughter was murdered by someone she met online and who has become an advocate for online safety.  He thinking it should be required viewing for teenage girls.

So, I thought it was interesting that in New Zealand, Fishpond are being fined $4,200 for providing access to a film that the father of a murdered daughter thinks could raise awareness of safe online behaviour.  Admittedly, by the sound of it, you’d be just as likely to scar your daughter for life, but I still found it noteworthy.

Cheers,
Lliam Munro

I'm not likely to watch either. But I hate that I can't watch either. This is entirely inside-the-asylum kind of stuff. How much better are we really than parts of Alabama that ban sex toys?

The Tiwai Point Subsidy

Matt and Paul have both covered the subsidy to Rio Tinto that facilitated a new contract between RT and Meridian Power. There is not a lot to say about the actual policy; Matt's "Urg" pretty much sums it up. But a few points about the politics of this are worth noting. 

1. There was nothing inherently wrong about the a long-term contract between Meridian and Rio Tinto at favourable rates. I believe that in the past transmission constraints meant that the opportunity cost of power delivered to Rio Tinto was not necessarily the wholesale price elsewhere on the grid. And I also understand that the smelter was drawing power fairly evenly throughout the day rather than mostly at times of peak demand. I stand to be corrected on both those points, and maybe Meridian negotiated poorly in the past, but, absent government subsidies in the past, these were normal commercial transactions that should not colour our opinion about the subsidy announced yesterday. That subsidy should be criticised on its own merits. 
2. It is hard to believe that the decision was not affected by the political capital the government has tied up in its asset sales programme. Again, however, that should not colour our opinions about the policy. The policy would not be any better if it were motivated by different objectives. 
3. Labour are totally on the right side on this one, but it is notable that Clatyon Cosgrove's reaction reported in this Stuff article, framed things entirely in terms of it using taxpayer's money to facilitate the partial sale of Meridian. It would be good to hear a clear statement from Labour that they are opposed to corporate welfare of any kind, and, if it were them, they would have just let Rio Tinto close down the smelter. As it stands, they might be saying that National paid a subsidy for the wrong reasons, but they would have done the same in order to protect jobs in Southland. I haven't seen the news coverage. Has anyone seen if a journalist has put this question to Labour?