Author: Richard Tol

Cycle to Work

I was struck by the amount of press coverage of the Cycle to Work scheme (C2W). The Irish Bicycle Business Association (IBBA, which seems to have no website) launched a report (which cannot be found online) praising the virtues of C2W.

The report in the Irish Times is brief. 90,000 bikes have been sold since the scheme was introduced. There is no estimate of how many bikes would have been sold without C2W. The IBBA spokesperson claimed that “cycling journeys have increased by more than 50 per cent”, which may or may not be due to C2W, and may not be true as Irish data on travel and transport are sparse. The Dublin Canal Crossing counts (h/t Ossian Smyth) surely do not support a 50% increase.

RTE, BusinessWorld and the Irish Examiner add that 50 new bicycle shops have been established, and 767 new jobs created. They note the increase in the number of bike-based charitable events. And they cite the example of Temple Street Children’s University Hospital, which apparently has kept excellent records of how its employees travel to work.

SiliconRepublic has the most extensive story. It cites a LSE study that shows the commuting by bike improves your health. Such studies are plagued by endogeneity: Are cycling people fit, or do fit people cycle? McNabola et al. (2008) show, for Dublin, that cyclists (who breathe differently) are particularly exposed to PM2.5 and VOC.

The Irish Independent interviewed a bike shop owner. He notes that, since C2W, people buy more expensive bikes and that the success of his business is due to C2W.

C2W is a subsidy on the purchase of a new bicycle. You would indeed expect that people would then buy more and more expensive bikes, which is good for bike shop owners. C2W was one of the first policies introduced by then-Minister Eamon Ryan, who once owned a bike shop (see here).

C2W is unrelated to the use of the bike. Even without the C2W, bicycles beat cars on cost. I find it hard to believe that C2W has induced many to cycle to work instead, but I am aware that there no data to support this.

Transparency in public energy policy

Slí Eile asserts that the culture of secrecy is alive and well in policy making in Ireland. Here’s the full essay.

The rest of this post is about a related topic, and the about an irregular commentator to this blog: Pat Swords.

Once upon a time, Pat asked the relevant authorities in Ireland for the benefit-cost analysis that underpins the public investment in wind power in Ireland. This is a perfectly reasonable request, as the public investment is substantial. There are three sources of money: tax revenue, reinvestment of profits by state-owned companies (which could have been paid in dividend to the owners aka the tax payer), and public services obligations (i.e., levies on electricity that are not quite taxes but feel the same way).

Pat’s request was refused, and so started a protracted legal battle, involving the Department of Energy, various other government bodies in Ireland, DG Environment, the European Ombudsperson, and the UN Economic Commission for Europe. There are a number of complications. Pat asked for information that probably should exist but as far as I know does not. Pat requested information under the Aarhus Convention, a UN treaty that was not ratified by Ireland. However, it was ratified by the EU, and Ireland has transposed the corresponding directive. Ireland’s renewable target is similarly derived from EU targets, the justification and even documentation of which leaves much to be desired. Europe part-funded some of the infrastructure that underpins the expansion of renewables. And there are other parts of the Acquis that may pertain to this case.

I’m no lawyer so I will not opine on the likely outcome of the case. I would have used less abrasive language than Pat is wont to. I agree with Pat that the renewables targets are expensive. I fail to understand that there are any benefits from having such a target. I am aware of the long list of wonderful things that are claimed to be benefits of renewable energy. I do not think any of them stacks up.

Most importantly, I think that a democratic government should be open and transparent, and be able to explain how and why it spends our taxes or implements costly regulation. There is often a good reason, or matters may be beyond our control.

If Pat wins this case, the ramifications could be widespread. Renewable energy is surely not the only area in which the Irish government has made dodgy and badly documented decisions. The Aarhus convention only applies, however, to policies that touch the environment.

Here’s the full story. It’s long, complicated, and occasionally intemperate.

The impact of the PRTLI

The HEA has published its impact analysis of the Programme for Research in Third Level Institutions (h/t Colm Harmon). It is good that government agencies are increasingly open to such evaluation.

From the executive summary, we learn that PRTLI centres and initiatives had a budget of 1.7 bln euro, with 1.2 bln from the Exchequer. 1,700 people were employed, at an exchequer cost of 700,000 euro per job. In 1998, 2,400 full-time academics were employed at the universities and ITs. In 2008, there were 6,200 FTEs.

The commercial impact (a mix of turnover, investment, and cost savings) was 750 million euro, with 1,300 jobs created (or 600,000 euro per job). For the next five years, a further impact of 1.1 bln euro is projected.

In the foreword, John Hennessy (the HEA chairperson) puts on a brave face and lists all the benefits that were not quantified.

Intrigued by the numbers (and their precision; above numbers are rounded) in the executive summary, I read on expecting to find tables and tables with detailed data that would tell me who publishes and who gets cited, which disciplines create economic value, and what universities are motors of development. Unfortunately, such data is not available. The data, by the way, were gathered by questionnaire — that is, companies were asked how many people they additionally employed because of the PRTLI.

Some evaluation is better than no evaluation, but I think that a 1.2 bln euro investment warrants more analysis than what is offered by the HEA.

Do college rankings matter for student choice?

A guest post by Kevin Denny

The recent publication of the QS world rankings generated a lot of interest as well as criticism from various people, including me. A common response to such criticisms is to say “Like it or not, they matter to people so we need to pay attention to them”.  But do they matter?

This paper looks at how the publication of US college rankings influences the demand for places but only when colleges are not listed alphabetically.

Salience in Quality Disclosure: Evidence from the U.S. News College Rankings

M. Luca & J. Smith

How do rankings affect demand? This paper investigates the impact of college rankings, and the visibility of those rankings, on students’ application decisions. Using natural experiments from U.S. News and World Report College Rankings, we present two main findings. First, we identify a causal impact of rankings on application decisions. When explicit rankings of colleges are published in U.S. News, a one-rank improvement leads to a 1-percentage-point increase in the number of applications to that college. Second, we show that the response to the information represented in rankings depends on the way in which that information is presented. Rankings have no effect on application decisions when colleges are listed alphabetically, even when readers are provided data on college quality and the methodology used to calculate rankings. This finding provides evidence that the salience of information is a central determinant of a firm’s demand function, even for purchases as large as college attendance.

[NOTE: The “rankings” tag leads to previous posts on this topic.]

UPDATE: Glenn Ellison has a cool paper that’s related:

Abstract:

A large literature following Hirsch (2005) has proposed citation-based indexes that could be used to rank academics. This paper examines how well several such indexes match labor market outcomes using data on the citation records of young tenured economists at 25 U.S. departments. Variants of Hirsch’s index that emphasize smaller numbers of highly-cited papers perform better than Hirsch’s original index and have substantial power to explain which economists are tenured at which departments. Adjustment factors for differences across fields and years of experience are presented.

CBA of the Home Energy Saving scheme

The SEAI has released its cost-benefit analysis of the Home Energy Saving scheme, which concludes that for every euro invested, five euros were earned. More money to the SEAI so, and the economic crisis will soon be over.

Intriguingly, the results for the HES are in sharp contrast to the evaluation of the Warmer Homes Scheme — which found that the subsidies had no statistically significant impact on behaviour — and the evaluation of the Green Homes Scheme — which found net losses.

The evaluation of the HES leaves some things to be desired. For optical reasons, it may be better to commission an independent outsider to do the evaluation. Instead, SEAI staff evaluated an SEAI programme.

The cost is assumed to equal the sum of the public and private expenditure. The HES is a price subsidy. It increases the consumer surplus, by less than the total subsidy. The net cost is the difference. Private expenditure does not enter that calculation.

The study ignores changes in producer surplus. These are probably small, if we assume that investment is displaced.

Benefits are the energy savings and the avoided carbon dioxide, . The study assumes that only 18% of the investment in energy saving would have been made without the subsidy. This is in contrast to the Greener Homes evaluation, which finds that roughly half of the investment would have been made anyway, and the Warmer Homes evaluation, which finds that almost all of the investment would have been made without the subsidy.

Energy saved and CO2 avoided are discounted at 4%. If only that were the opportunity cost of public investment.

The study accounts for the VAT paid on energy. Surprisingly, the carbon tax is omitted from the analysis. The HES subsidy is double regulation: Carbon dioxide emissions are taxed, and emission reductions are subsidized. In other sectors of the economy, there is single regulation (carbon tax, or ETS permit price). The HES subsidy thus introduces a distortion in Ireland’s CO2 abatement policy: We abate too much in home energy use and too little elsewhere. This distortion is not quantified in the study.

In sum, this CBA of the HES does not tell us much that is useful. Its conclusions are not supported.

One can assess the HES based on first principles. It is a second-best intervention: Carbon dioxide emission are regulated already. It is an inefficient intervention: It is a fixed subsidy on investment, unrelated to the emissions avoided. It may well be that the HES addresses some imperfection in the market for home improvement (e.g., constrained access to borrowing) but, if so, it is a second-best intervention in that problem too.

If the SEAI had concluded that there was a benefit of 80 cents for every euro invested, I probably would have believed them.