Sunday, 26 February 2017

Book Review: Diversity Explosion

I just finished reading "Diversity Explosion: How new racial demographics are remaking America", by William Frey. I thought this would be quite relevant to my work on the CADDANZ (Capturing the Diversity Dividend for Aotearoa New Zealand) project, and a good follow-up to reading Thomas Schelling's "Micromotives and Macrobehavior" (which I reviewed a couple of weeks ago).

Overall, I found the book to be a really interesting read, but that was mainly for the first few chapters, and the last few chapters. Frey essentially uses the book to outline the demographic (specifically, ethnic) changes that the US has undergone over the period 2000-2010. He takes a longer perspective in parts, but mostly the focus is on the (sometimes dramatic) subnational changes that have occurred and will continue into the future. A couple of the trends were quite surprising to me such as this bit:
...white-only flight to the suburbs is a thing of the past. In fact, nearly one-third of large metropolitan suburbs showed a loss of whites between 2000 and 2010, and Hispanics are now the biggest drivers of growth of the nation's metropolitan population in both cities and suburbs. Today, it is racial minorities, in their quest for the suburban dream, who are generating new growth and vitality in the suburbs, just as immigrant groups did in the cities in an earlier era.
And this bit:
Thirteen of the 20 cities with the largest black populations (including nine of the ten largest) registered declines in their black populations in 2000-10...
The latter trend is related to the former, in the sense that there has been a huge increase in suburbanisation of the black population since 2000, to the extent that Hispanics (rather than blacks) now constitute the largest minority group in U.S. cities as a whole.

Some parts of the book seemed rather quaint to me (or to you they may be odd), such as the old-fashioned treatment of race vs. ethnicity, where Hispanic is an ethnic classification, but all others are racial. All the papers I have read that talk about "non-Hispanic white" population suddenly made a bit more sense, although the classification is really worrying. To be fair, Frey himself notes:
It can be argued that the distinction between race and ethnicity, as the Census Bureau applies it to the Hispanic population, is an artificial one.
We can only work with the data that are available, and until the US Census Bureau gets its act together on ethnic classification, US studies are pretty much stuck with the current situation.

This bit also made me smile:
It was punctuated by the arrival in 2011 of the first "majority-minority" birth cohort: the first cohort in which the majority of U.S. babies were nonwhite minorities...
I smiled because it reminded me of this cartoon, which sums up the white-centric nature of the above quote (and to some extent, the whole book):

The early chapters introduce the idea of the 'cultural generation gap' between "the diverse youth population and the growing, older, still predominantly white population". This generation gap will be exacerbated by the faster population growth of the more youthful minorities (especially Hispanics) compared with slower population growth among whites.

Most of the middle chapters will not be of interest to the general reader (unless you are really interested in the finer points of the subnational distribution of ethnic groups in the U.S.), but the final chapters are more interesting, including where Frey attempts to draw out the political or electoral implications of the change ethnic mix. I wish I had read this book before the 2016 presidential election, and in light of that result there are some sentences that Frey might want back, such as:
If Romney could have eked out a victory, perhaps with greater white voter turnout, it would probably have been the "last hurrah" for a party strategy that relied primarily on whites as its base.
Which, of course, was exactly Trump's strategy (if you believe there was a strategy). A map later in that chapter was really interesting, because it laid out the number of states that Obama won in the 2012 election, due to minorities but not whites. With the benefit of hindsight, perhaps viewing those maps would have made some of the Clinton-boosters take pause.

Anyway, there are a number of interesting graphics in the book, with thoughtful (and though-provoking) commentary. Probably I will look to reproduce some of the graphics (but using New Zealand data) sometime in the future. This book would be a good read for anyone interested in ethnicity statistics, particularly in the context of the U.S.

[HT: Tahu Kukutai, for the cartoon, which she used in her Pathways conference presentation (PDF) last year]

Saturday, 25 February 2017

Kenneth Arrow, 1921-2017

Last week one of the greatest minds in economics passed away. In 1972 at the age of 51, Kenneth Arrow was the youngest ever to win the Nobel Prize in economics (a record he still holds), and five of his students have gone on to win Nobel Prizes as well, including Eric Maskin, John Harsanyi, Michael Spence, and Roger Myerson. Maskin's student Jean Tirole has also won a Nobel Prize, so that is a 'family tree' that is really unmatched (at least in economics).

Arrow's contributions are really too many to describe in detail (A Fine Theorem has made a start - the first of four promised posts is here), but I see four main areas:

  1. Social choice theory - Arrow's impossibility theorem, which we discuss in ECON110, details how there can be no 'perfect' majority-rule voting system that satisfies a set of axioms that most people would expect from a 'fair' voting system;
  2. General equilibrium - Arrow, along with Gerard Debreu, proved the (theoretical) existence of a market-clearing equilibrium set of prices across all markets, and that the resulting equilibrium would be efficient (this is one of the bases for economists' claims that competitive markets are efficient);
  3. Health economics - Arrow wrote the first paper that teased out the complexities of health care as a good (which we discuss in ECON110), including the fundamentals of asymmetric information that Spence and others built on; and
  4. Measurement of risk - Arrow outlined the mathematical concepts that economists use to measure risk.
Of course, he made many other contributions than those outlined above. Tim Harford has a great post here, and the New York Times obituary is here. And here is a recent (2016) interview with the great man. He will be missed.

Friday, 24 February 2017

Climate change won't much affect internal migration in NZ

Climate change is likely to be one of the key challenges facing humankind over the coming century (or more). We are likely facing increases in mean temperature, desertification, rising sea levels, and increasing frequency and intensity of extreme weather. But how big is the impact likely to be on a country like New Zealand, anyway?

In a new working paper, I evaluate the impact of climate change on internal migration in New Zealand, and what that means for the future spatial distribution of population. That is, which regions are likely to gain population from climate change, and which will lose population? I make use of a gravity modelling framework (which I have written about before). Essentially, a gravity model suggests that the migration flow between two regions is positively related to the population of the origin and the population of the destination, and negatively related to the distance between the two places. I tried out a bunch of climate variables from NIWA to find those that appeared to have the biggest impact on internal migration, using data on inter-regional migration from the last four Censuses (1991-2013).

Three climate variables are found to have statistically significant associations with internal migration: (1) mean sea level pressure in the destination; (2) surface radiation in the origin; and (3) wind speed at ten metres at the destination. The sign of the effects suggest that migrants attracted to areas with more settled weather (higher mean sea level pressure); migrants are less likely to move away from areas with more sunlight hours (but interestingly, don't move towards those areas); and migrants prefer to avoid moving to areas that are windier.

I then embedded the gravity model within a cohort-component population projection model, which is something that Jacques Poot and I have been working on for a number of years. I used the projections model to evaluate the effect of different climate change scenarios on regional populations out to a horizon of 2100.

Including the three climate variables in the population projection model makes a small difference to the regional population distribution. The inclusion of climate variables increases the projected populations of Northland, Bay of Plenty, Gisborne, Hawke’s Bay, Taranaki, and Nelson. The overall impact is quite small, as you can see from the diagram below for Northland. The orange line tracks the projected population of Northland excluding any impact of climate, while the grey line includes the impact of climate. Bear in mind that Northland shows the biggest effects in relative terms - the effects on other regions are smaller.

I also looked at the effect of different climate change scenarios, and the difference between different climate scenarios is negligible. The diagram below shows the projections under different climate scenarios for the Southland region. As you can see, there is little difference between them (and that result is similar for other regions as well).

Overall, the results suggest that, while statistically significant, climate change will have a negligible effect on the population distribution of New Zealand at the regional level. This is not to say that climate change will not have important and substantial effects at very localised levels, as a result of sea level rise, for instance. However, most if not all of the displacement of people will be within regions. For example, maybe those displaced by sea level rise simply move a little further inland, or we build walls to keep the sea at bay.

Read the full working paper here.

Thursday, 23 February 2017

Price discrimination in tourism... India edition

This short post by Alex Tabarrok at Marginal Revolution contained this picture:

So, foreign nationals at the National Museum of India in Delhi pay more than thirty times the price that Indian nationals do. Of course, this type of price discrimination is a topic I've written about before. Here's what I said then (in the context of entry to Ayutthaya in Thailand, but the principle is identical):
Of course, this is an example of price discrimination - where different consumers (or groups of consumers) are charged different prices for the same good or service, and where the difference in price does not arise because of a difference in cost. So, in this case there are two groups (foreigners and locals) paying different prices for the same thing (entry into Ayutthaya, or some other tourist attraction).
How can they get away with this? Well first, price discrimination is not illegal. If it were, then you couldn't haggle over any prices (and haggling is almost mandatory if you are shopping at the markets in Thailand and don't want to get ripped off!). Second, the seller needs some degree of market power - they need to be able to set the price. Since there are few substitutes for seeing Ayutthaya and there is only one supplier, that guarantees some market power here. Ok, so that's the basic market condition for price setting sorted.
For price discrimination to work though, you need to meet three conditions:
1. Different groups of customers (a group could be made up of one individual) who have different price elasticities of demand (different sensitivity to price changes);
2. You need to be able to deduce which customers belong to which groups (so that they get charged the correct price); and
3. No transfers between the groups (since you don't want the low-price group re-selling to the high-price group).
Those conditions are generally met in the case of tourist attractions. Foreign tourists have low sensitivity to price (low price elasticity of demand) for a few reasons - there are few substitutes for visiting Ayutthaya (or other tourist attraction). Foreign tourists have usually also travelled a long way at great cost to get to Thailand, so the cost of entry into Ayutthaya is pretty small in the overall cost of their holiday. For these reasons, the foreign tourists are relatively insensitive to price and raising the price of entry isn't going to keep them away in great numbers.
Tabarrok asks:
 Is this fair or ethical? Would it be legal in the United States?
I don't know about the US, but it's not illegal here (or, evidently in India or Thailand). In fact, as I argued in that earlier post I'm surprised we don't see more of it in New Zealand. Price discrimination is a legitimate way for firms to extract additional profits from consumers who are willing to pay higher prices. It's just that it isn't usually quite as overt as in Alex's example.