(How) Would the New Hampshire Model of Free Market Casino Legalization Work? Doug Walker College of Charleston Paper presented at 11 th European Conference on Gambling Studies and Policy Issues Lisbon, Portugal 14 September 2016
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Background New Hampshire was the 1st state to legalize a lottery, in 1964 Has a few minor club/casino games Several gambling bills defeated in NH House in last 5 years 1 or 2 destination resort casinos Other proposals have been for machines at tracks Gov. Hassan supports 1 casino Walker, Free Market in Casinos 4
Arguments for casinos Economic Fees and tax revenues Employment Tourism Defensive legalization Boston casino within 1 hour drive of 3 largest NH cities Walker, Free Market in Casinos 5
Arguments against casinos Social costs Crime (mixed evidence) Problem gamblers Bankruptcies, divorce, other social problems But are these infra-marginal impacts for NH? Gov. Hassan argues that with Boston casino so close, NH will have these problems anyway Walker, Free Market in Casinos 6
Arguments against (cont.) Some NH House libertarians don t want govt regulation of gambling Govt shouldn t create a monopolies or receive rents Should simply reverse gambling ban(s) Northeast US market may be saturated Closure of 4 (of 12) Atlantic City casinos cited as evidence (+1 more next month Taj Mahal) Not defined in casino literature But why should NH care about the regional industry? Walker, Free Market in Casinos 7
Is the NE market saturated? Walker, Free Market in Casinos 8
Casino & problem gambling prevalence 1,000-1,500 casinos operate in the US Short driving distance for most people Evidence on problem gambling WRT casino expansion Prevalence rates have remained fairly constant Exposure/adaptation theory (LaPlante & Shaffer 2007) Mixed evidence (St-Pierre et al. 2014; Welte et al. 2015) Walker, Free Market in Casinos 9
Morality Best arguments against legalization Wrong for govt to promote gambling Gambling is immoral NIMBY Externalities from gambling related to problem gambling Walker, Free Market in Casinos 10
Best economic arguments for legalization Consumer benefits More competition => higher quality, lower prices Benefits from increased variety Economic sovereignty Private property rights / free market Consumer choice Mutually beneficial voluntary transaction Walker, Free Market in Casinos 11
Best economic arguments for Negative externalities regulating casinos 3 rd party effects, ignored by actors to transactions Problem gamblers engage in socially costly behaviors Provide for treatment funding Trivial in many jurisdictions Walker, Free Market in Casinos 12
Deciding to legalize State govt typically uses a cost-benefit approach But focuses on benefits to itself (tax revenues) Discounts costs and external costs Costs and benefits defy monetary measurement (Walker & Barnett 1999) Should consider role of govt in a free society (Collins 2003; Walker 2007) The Libertarian argument in NH Walker, Free Market in Casinos 13
Typical state casino regulations Casinos chosen through beauty contest among proposals (Cummings) Number, size, location Limited number and minimum investment Mandate location, or allow local approval Regulate types & numbers of games Minimum machine payouts Amenities Management background Walker, Free Market in Casinos 14
Govt rents from control Rents created through Enforcement of monopolies Limited regional competition: MA, KS, OH, etc. Rents from License fees Machine/table fees High taxes on gross gaming revenue (GGR) Walker, Free Market in Casinos 15
Would a free market work in NH? The casino industry in Las Vegas operates as a near free market Numerous casinos, various sizes Billboards advertising 100% payout on slots Competition pushes down prices Restaurants in Charleston Lots of new entrants Competition keeps quality high (food and service) Restaurants who don t serve customers well go out of business Walker, Free Market in Casinos 16
What would happen? A new Macau or Las Vegas? No, limited demand in NH A single first mover could dominate the market Like Foxwoods? Now too big Casinos in a free market would anticipate competition Many small locals casinos might arise With no regulations, any business could add slot machines Walker, Free Market in Casinos 17
How markets regulate Companies seek profit (revenues minus cost) By each firm maximizing profit, the total cost of producing the socially optimal quantity is minimized by the market The same quantity government would want to provide for economic efficiency Casinos that don t make a profit would go away This is good from an efficiency perspective Walker, Free Market in Casinos 18
What govt regulates Number/size of casinos Industry is best able to determine Expected demand Anticipated current and future competition May want to prevent machines in bars and/or small casinos Tax rate Lower tax => more capital investment Stability of tax rates is important for planning casino number/size Walker, Free Market in Casinos 19
Other desirable regs? Compliance with existing zoning laws? Background checks for management? Certification/regulation of games? Would market competition protect consumers and assure fairness of games? Walker, Free Market in Casinos 20
Questions, Comments? Contact Info Doug Walker Professor of Economics College of Charleston Charleston, SC +1 (843) 953-8192 WalkerD@cofc.edu walkerd.people.cofc.edu Walker, Free Market in Casinos 21