A public choice perspective on the progression of casino gaming

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1 paper prepared for 15th International Conference on ambling & Risk Taking public choice perspective on the progression of casino gaming Miao HE, Ricardo C.S. SI 1 bstract: Following the public choice literatures which explore the voting process to obtain an economic decision (Morton, 1991; Olson, 1965; Riker and Ordeshook, 1968; Stigler, 1974; etc.), a model is formulated in this paper to reveal the related forces which lead to the legalization/liberalization of casino gaming as a modern economic sector. It is shown that an individual s decision to participate into a voting process or not is influenced by his/her anticipated benefit and cost. Then, the aggregate force of the beneficiary group and the anti-gaming group in standing for their own economic and emotional interests determines the voting result. Indeed, the arguments as presented in this model are verified by respective evidences as derived from tlantic City in New Jersey and Taiwan, where sate-wide vote/referendum are adopted to decide the progression of casino gaming. 1 Miao He is a Ph.D. candidate in Economics at the Faculty of usiness dministration, niversity of Macau. [Corresponding address: v. Padre Tomas Pereira, Taipa, Macao SR, China. Ricardo C.S. Siu is an ssociate Professor of usiness Economics at the Department of Finance and usiness Economics, Faculty of usiness dministration, niversity of Macau

2 1. Introduction Throughout the history of economic evolution since the Industrial Revolution, constraints and opportunities associated with the progression of an economy and its various industries have been evidently influenced, to a different degree, by the political system and the public interests of the nation. Indeed, dynamic interaction between social and public interests which ultimately turn out to be the pubic choice and shape the practical structure and organization of an industry, determines its evolving path, hence its changing performance over time. efore the middle of the 2 th century, despite the mainstream economists interests in exploring the role of government in protecting individuals and their property rights (e.g., see Ricardo 1821; Mill 1848), seldom attention was paid to the political decision making process (uchanan, 23), which leads to the various public choices. s inspired by rrow in his Social Choice and Individual Value (1951), which argued that social choice may not necessarily be obtained from the aggregation of individual preferences, researchers began to explore the formal and informal constraints of government s decision-making process (rrow 1951; Coase 196) and the government failure caused, such as regulatory capture, rent-seeking, corruption, etc. (Tullock 1959; uchanan and Tullock 1962; Olson 1965; Weschler 1982; dehn 1995; lankart and Koester 26). It is generally found that the decision making process of a - 2 -

3 government is run by self-seeking politicians, whose interests are influenced by, but not necessarily identical to various interest groups. Recently, public choice theories have been widely applied to the related studies of public proects (Stigler 1971; Peltzman 1976; ecker 1983), environmental policy (Ederington and Minier 24), urban development (Stern 1993), and gaming policy (Sauer 21), etc.. Nevertheless, none of them was exploring the public decision making process for the legalization and progress of casino gaming, which has been widely recognized as one of the faster growing global industries since the last decade of the 2 th century. s a socially and ethically controversial industry, casino gaming is quite unique from its approval process as a legalized business to its progress over time. Throughout this process, it is commonly observed that social and public choices, and their changes may exert higher weights in influencing the practice of casino gaming than economic interests. Nevertheless, given the social interests (e.g., prevailing social belief and convention), it is not necessarily identical to the public choices which ultimately determine the legal structure and organization of this industry. Indeed, on top of social interests, public choices may largely be influenced by the interests of a few power groups (i.e., the government and the enterprises). Therefore, the public choice theory may provide a more realistic ground to explore the practice and progress of casino - 3 -

4 gaming under the interacting forces between the related power groups and the local community. In section 2, factors influencing the public choice of casino gaming and its nature as a policy-biased industry will be described in details. ased on the nature of this industry, a model with reference to related public choice theories is developed in section 3. In addition, the notion of rrow s Impossible Theorem, the rational ignorance of voters, the influences of interest groups in the legalization and progression of casino gaming are explored. In section 4, related evidences derived from the global markets would be cited and analyzed. Lastly, an agenda for ongoing researches of related topics will be outlined. 2. Factors influencing the public choice of casino gaming Different from the general practice of industries like farming and manufacturing of different types, banking and finance, hotel and restaurants, etc., casino gaming is subect to the public choice on its legitimacy in the first place, which further shapes its layout (including its structure and organization). To a nation or a local government, an attractive proposition for legalizing and developing casino gaming as a modern industry is the attempt to grasp the explicit and considerable volume of economic returns (e.g., direct monetary income, capital investment, and employment opportunity, etc.), as well - 4 -

5 as to propel the development and redevelopment of various related sectors (e.g., leisure, recreation and tourism) in the local economy (Eadington 1995 and 1999; oodman 1994; rinols and Omorov 1996). Nevertheless, a unique attribute of casino gaming is that in the process of providing related gambling services to the general public, various averse social impacts (including social costs) may be associated (oodman 1994; Eadington 1995; azel and Thompson 1996; rinols and Omorov 1996; rinols and Omorov 1996; Eadington 1999; Walker and arnett 1999; Koh 24; Walker 27). For example, problem and pathological gambling, crime, personal bankruptcy, etc., are commonly claimed as the resultants of casino gaming (although they may be biased). Consequently, the extent of legitimacy and development of this industry are largely curbed by the moral concerns of various social and political groups. In addition to the internal factors, the pubic choice in the legalization and development of casino gaming in any one urisdiction may also be influenced by the related public decisions in the neighboring regions/nations. t large, international experiences reveal that the successful experience of a casino urisdiction may diffuse to its neighboring regions (Calcagno, et al. 21; Richard 21), and the dynamics would further be accelerated. For example, following the successful experiences as reported by Las Vegas since its liberalization by the end of the 196s, tlantic City legalized its - 5 -

6 casino gaming in Thereafter, more and more states in the S chose to legalize their own casinos, partly on the purpose to cannibalize the citizens gambling expenditures spent in other out-of-state casinos. Throughout this process, it is evident that while public choice is in principle reflecting the social preference, it is not a static state and could be varied over time when either (or both) the internal or (and) external settings changed. This argument is also true when it is verified by related evidences from sia since the dawn of the 21 st century. Following the Macao Special dministrative Region (SR) overnment of China liberalized its casino industry in 22, and the Singapore overnment formally approved its casino bill in 25, it is evident that the related changes in the public interests towards casino gaming are diffusing to other sian nations. iven the potential economic benefits and social impacts/costs associated with casino gaming, it is commonly found that the industry s scale and layout, hence performance in a particular urisdiction reflects a public choice, which is a trade-off between the preferences of various interest groups (Eadington 1984). enerally speaking, three maor groups (they are, the government, the community, and the related business firms) may participate in the public choice process of casino gaming. Within each group, there are two subgroups who are in favor of casino gaming and opposing it respectively. For example, some regulators may be in favor of legalizing (or - 6 -

7 liberalizing) casino gaming for the potential tax revenue and its contribution to the local economy, while another group of regulators may protest the proposal under the consideration of its possible negative social impacts. To the community, casino patrons, local workforce, and taxpayers may be glad to have casino gaming, while the religious group may remonstrate about the proposal. Indeed, the most aggressive group in the progress of casino gaming is probably the related business firms who are entitled directly and indirectly for the related monetary/economic benefits. This group may actively push the progress of casino gaming by sharing their economic benefits with the various interest groups (including the protesters), and contributing to the development of other related sectors such as leisure, recreation and tourism. Nevertheless, as not all firms are beneficial from progress of casino gaming, and some of their business opportunities may even be cannibalized, hence opposing the related casino proposals. To generalize the aforementioned arguments which influence the public choice of casino gaming, Figure 1 depicts the interactions between the maor interest groups. In the process of arriving the related public choice, the supporting community and related business groups usually try to influence the regulators directly through lobbying or campaign funds, or indirectly thought their networks with the regulators as some regulators themselves may be socially or politically members of the related interest - 7 -

8 groups. Conversely, the regulators may also try to reinforce their interests through the provision of various related incentive schemes (e.g., taxation). Figure 1 The involvement of representative interest groups in the public choice of casino gaming 3. public choice model In the group model of voting behaviors, it is widely assumed that an individual will vote for a candidate/legislation if P + T > C (Morton 1991), where P is the probability change that the preferred candidate will win if an individual votes, is the difference of the individual s benefit when the preferred candidate wins, T is the utility terms of voting taste, which is the exogenously determined preferences on preferred candidate (Riker and Ordeshook 1968), and C is the cost of voting in utility terms when the individual votes for a candidate. Consequently, the individual will only vote when - 8 -

9 the expected benefit plus the voting taste generated from the participation is larger than his/her monetary cost. To formulate the competing forces which influence the pubic choice of casino gaming, the theoretical framework is followed in the first place, and modified to fit into the purpose of this study. With reference to Figure 1, it is assumed that in the political process which determines the public choice of casino gaming, there are two maor groups in actions the anti-gaming () and the beneficiary group (). roup and represent the aggregate force of the respective 3 subgroups as depicted in Figure 1. It is assumed that there are a people in group, and b people in group 2. It follows that if casino gaming is legalized, the income redistributed to each group are defined as R = Z Z and R = Z Z (1) where R, R = amount of income redistribute to (or away from) group and, Z, Z = income of group and after casino gaming () is legalized/liberalized, Z, Z = income of group and prior to the casino legalization/liberalization 2 It is assumed that the group number is given and individuals hold predetermined position in casino legalization. For the case that the individual is neutral to casino gaming, please refer to Casino legaliazation as an evolutionary game who will be the next? (Miao He, 213) - 9 -

10 enerally speaking, legalization/liberalization (which is abbreviated to legalization in the rest of part of this paper) of casino gaming increase the monetary income of the local economy to both group and group (i.e., R, R > ) when > new business opportunities are generated (e.g., exports of gaming and other tourism services to the visitors). In addition, as gaming tax increased, the government may lower the direct and indirect taxations imposed to its citizens, as well as subsidize and provide more public services. Moreover, non-monetary terms like the ethical and religious concerns may also take effect in the legalization process, which will be examined in the following sections. 3.1 The beneficiary group model Evaluating from both monetary and nonmonetary terms, it is evident that total benefit entitled by group is larger than group in the casino legalization process. ccordingly, we will start the analysis from group. It is firstly assumed that the expected benefit of group to participate in the legalization process can be separated into two terms. One is the expected utility when group win ( ), and another is the voting taste ( t ). Indeed, t is independent from the voting result, which includes the satisfaction to express one s choice, the affirmation of one s importancy in the - 1 -

11 diffusion of social belief, the realization of group identity, etc. In addition, the expected utility is comprised of both monetary and nonmonetary terms, = Z + E (2) where E = the emotional benefit of group after casino legalization and E > The emotional benefit of group could simply be expressed as the happiness to gamble, the easy access to good quality service, etc. Indeed, E could be stimulated by government signaling ( s ). If the government provides more clear signals for casino legalization, such as to state clearly its improvement on the local gaming and related entertainment, as well as tourism facilities, group may be more incline to participate in the voting process. So E E = F(s) and > (3) s If casino is prohibited, however, there will be no income redistribution and the income of group will retain at the original level. ecause they are supposed to strictly prefer casino legalization to prohibition, they will obtain no emotional benefit as well. Hence = (4) Z Where = the expected utility of group if casino is prohibited Suppose that there are already i persons in group and -1 persons in group who will participate in the voting process, the possibility that the casino will be

12 legalized (i.e., group win) is P ( i, 1) and < ( i, 1) <1. Since the cost of P participation is not identical to each individual, and to some individuals this cost may be larger than the benefit. Thus, not all the group members will participate in the process (i.e., the behavior of rational ignorance in public choice theory), i and are smaller than a and b, respectively. n extra person in group (say, ĵ ) would choose to participate in the process or not with respect to his/her expected benefit. If s/he chooses to participate, s/he can definitely realize t as it is independent of the voting result. Nevertheless, the utility cost from the participation ( c ˆ ) will be generated, which includes the private cost (e.g., the time spent in this process) and the group cost to behave as a part of the interest group (e.g., the time spent to persuade others on his/her choice). If the individual chooses not to participate, on the other hand, s/he can only obtain and if group win, if group win. The expected benefit of person ĵ can then be summarized as Table 1. Table 1 the expected benefit of person ĵ when s/he participate or not Possible results of casino legislation Casino prohibition Casino legalization ĵ participate 1 P ( i, ))( + t c ) P i, )( + t c ) ( ˆ ( ĵ ĵ does not participate ( 1 P ( i, 1)) P ( i, 1)

13 The rewards that person ĵ is expected to obtain from participating the process is then measured as ] 1), ( 1)), ( [(1 )] )(, ( [ )] ))(, ( [(1 ˆ ˆ ˆ i P i P c t i P c t i P V = So c t P V ˆ ˆ ) ( + = Where ) 1, ( ), ( = i P i P P ccording to equation (2) and (4), c t E R P c t Z E Z P V ˆ ˆ ˆ ) ( ) ( + + = + + = Consequently, person ĵ will only participate in the process if c t E R P ˆ ) ( > + + (5) iven the individual s incentive to participate in casino legalization process, the group leaders (i.e., the related governors) of group need to choose to maximize the group s expected utility. That is to Max C t i P i P b V + + = ] )), ( (1 ), ( [ ( <b) (6) Where = = C c 1 ˆ ˆ The first order condition of group s maximization is hence given by ) )( ( ' = + + = C t P E R b V (7) ccording to ecker (1983) s literature on voting, it is assumed that individuals in interest group would like to spend time and money on political pressures to transfer

14 these resources into outcome, and they are subect to diminishing returns. Hence the probability that group can win will increase when more people participate and more resources are available. Nevertheless, as more people involved, the decisiveness of an individual (i.e., the possibility that the voter is the marginal voter who can change the result) will decrease, that is 2 P P >, and < 2 (8) Since individuals hold predetermined position in casino legalization (i.e., information is given), their private costs can be assumed as identical. Nevertheless, the group cost of each individual will increase when more people involved, as due to freerider problems, large groups will face relatively high costs in attempting to organize for collective action (Olson, 1965: 43-52). Hence the group s utility cost (as an aggregation of the participators private cost and group cost) will increase at an increasing rate 3 : 2 C C >, > (9) 2 Consequently, the maximization state of group is showed in Figure 2. represents the marginal expected benefit from more participants to support the casino legalization (i.e., P ( ) t ), C ' = b R + E)( + refers to the marginal cost (i.e., 3 If the group is small, the group cost may increase at a decreasing rate. ut this is labeled as special interest theory of group action (Olson, 1965; Stigler, 1974) and is ignored in this paper as the population involved in the casino legalization process is in general large

15 C C = ), and * refers to the equilibrium state when marginal benefit equals to marginal cost (i.e., V '= when ' = C' ). Figure 2 Equilibrium state of beneficiary group 3.2 The anti-gaming group model Different from group, individuals in group concern more on the emotional/ethical benefits s/he can obtain from casino prohibition, and ignore the monetary benefit when casino is legalized. Hence their utility on the expected income redistribution of casino legalization is zero (i.e., ( ) = ), albeit that they can indeed R benefit from it. In addition, they will obtain positive emotional benefit when casino is prohibited as they are strictly preferred casino prohibition to legalization. So + E and = Z + R ) = Z (1) = Z (

16 Where = the expected utility of group if casino is prohibited = the expected utility of group if casino is legalized E =the emotional/ethical benefits of group if casino is prohibited, which is E negatively related to the government signaling on casino legalization (i.e., < ). s Consequently, the expected benefit of person î is listed in Table 2. Table 2 the expected benefit of person î Possible results of casino legislation Casino prohibition Casino legalization î participate P i, )( + t c ) 1 P ( i, ))( + t c ) ( iˆ ( î î does not participate P i ( 1, ) ( 1 P ( i 1, )) The rewards that person î is expected from participation is measured as W iˆ = [ P ( i, )( + t c )] + [(1 P iˆ ( i, ))( + t c )] [ P iˆ ( i 1, ) + (1 P ( i 1, )) ] So W iˆ = P ) ( + t c Where P = P ( i, ) P ( i 1, ) iˆ ccording to equation (1), W iˆ = P E + t c iˆ Consequently, person î will only participate in the process if P E + t > c (11) iˆ

17 The governors who want to prohibit casino gaming will choose i to maximize the group s expected utility. That is to Max W = a[ P ( i, ) + (1 P ( i, )) ] + it C (i<a) Where i 2 C C C c i ˆ and >, > 2 i i = iˆ = 1. The first order condition of group s maximization is hence given by P C W ' = ae ( ) + t = (12) i i Figure 3 showed the maximization condition of anti-gaming group. marginal cost (i.e., C C = i C' refers to the ), ' refers to the marginal benefit P (i.e., = ae( ) + t ), and i* refers to the equilibrium state (i.e., W '= when i ' = C' ). Comparing to group, the marginal benefit curve of group decreased more quickly as it does not include monetary terms. Figure 3 Equilibrium state of nti-gaming group

18 If each voter involved in the casino legalization process can spend identical expenditures on political pressure and is weighted equally, the legislation result of casino gaming is then decided by the comparison of i and. If i >, the anti-gaming group has more power to lobby the government and casino is more probably be prohibited. If, on the contrary, more individuals in the beneficiary group decided to participate in the process (i.e., > i ), casino may be legalized. However, exemptions may exist when the beneficiary group can have more discourse power in the government through lobbying. Combined with the government signaling, group can have enough power to persuade the anti-gaming group. Casino legalization may hence be guaranteed no matter how many opponents involved. 4. Evidences and discussions

19 The above argument that the progression of casino gaming represents a compromise of both economic and non-economic interests, as well as the local characters, can be verified by the casino legalization process of various urisdictions. Indeed, the mode of casino legalization process is varied across urisdictions. It will either decide by a general vote or a legislative meeting. The result is hence depended on the maority voting result of either the community or the governors. Table 3 revealed the current commercial casino states in the S and their modes of legalization. It s clear that the legislative result of casino gaming is more commonly relied on the government (i.e., legislative action) and the interest groups (i.e., local option vote). The state wide vote, which can directly reveal the relationship of public choice and social choice, has only been used by 6 out of 15 states. Nevertheless, the social choice can be expressed by pressing the government through campaign fund or lobbying, albeit whatever mode of legalization is chosen. State Year legalized Table 3 Commercial casino states in the S, 211 Legislative action Nevada 1931 New Jersey 1976 Mode of legalization State wide vote/referendum Local option vote Iowa 1989 South Dakota 1989 Colorado 199 Illinois 199 Mississippi 199 Louisiana 1991 Indiana

20 Missouri 1993 West Virginia 1994 Michigan 1996 Pennsylvania 24 Kansas 27 Maryland 28 Source: merican aming ssociation (212) State of the states However, the public choice is more probably departed from social choice in casino legalization through legislative action. Nevada, as an example, legalized casino gaming in 1931 with legislative action to stimulate its economy. The casino industry expanded rapidly thereafter, albeit that the organized crime is flourished as well. lthough the casino industry was then quite unstable and faced numerous pressures both from the community and from the federal government to be banned (Eadington 1982), it has continuous support from the state government and its legal status can be sustained. Similarly, the casino legalization in Malaysia and Singapore reflected more a bargaining between government and casino operators to re-build the city and to boost the tourism industry, respectively. ut the community only has limited power to express their choices. In consequence, the legislative action of casino legalization mainly demonstrates that the small group is able to press the government and hence the public choice. To this rationale, we will focus more on the casino legalization process through public referendum in this paper, with which conclusions can be applied to - 2 -

21 legislative action. s the existing materials/literatures about the progress of casino gaming are concerned with the nited States at large, this section will start with the New Jersey s case, which had hold a state-wide vote for casino legislation and was the second state who have legalized casino in the S following Nevada. With reference to the experience in the S, this section will then turn to Taiwan s case, which was the latest region that has legalized casino in sia. 4.1 New Jersey s case Indeed, tlantic City, the maor resort city in New Jersey, faced with numerous social and economic problems in 196s. ecause of the development of automobile and interstate highway system, tlantic City lost its position as a tourism center and became plagued with poverty, crime, corruption, and general economic decline (Dunnell 1975). In 1974, the governors who support to legalize casino in tlantic City placed a casino proposal, which would have permitted state-owned casino throughout the state, on the New Jersey general election ballot, albeit that the general public may still held a negative image to casino gaming 4. They targeted on the casino s ability to 4 statewide poll in 1974 revealed that 58% of them believed that casinos would attract crime to New Jersey (Sternlieb and Hughes 1983), which indicated that the general public in New Jersey still connected casino with crime

22 generate tax revenue and would like to persuade the voters that they should choose from a new state income tax or legalized casino (see Figure 4). Figure 4 The interest groups in New Jersey However, the beneficiary group was not well motivated by the proposal. On one hand, as the proposed casino is operated by the state, the related business group, such as the resort operators, can not expect direct monetary benefit from casino operation. On the other hand, the proposed casino s location is to be decided by a specific local referendum. Hence the local community, as well as the related tourism industries, can not guarantee that casino will operate in their urisdictions and hence may not expect any significant utility from income redistribution (i.e., ( ) ). Combined with R the fact that the emotional benefit is not signaled by the government (i.e.,

23 S =, E ), the expected utility of the beneficiary group in the 1974 referendum is quite low (i.e., ). Worse still are the anti-gaming group s high emotional concerns when they insisted that the casino would be more than enough and there will be gambling dense in your own backyard (Sternlieb and Hughes, 1983, 46). They concerned with the corruption problem, which was indeed prevailed in New Jersey at that time, that it may lead the enforcement of gaming law more controversial. Consequently, the proposal generated widespread opposition in the community (i.e., E > E ) and the community are more inclined to provide campaign funds to work against the proposal. Figure 5 showed the equilibrium state in the referendum. and represent the marginal benefit of beneficiary group and anti-gaming group, respectively. s the general community held a negative image of casino gaming (see Footnote 4), the voters may more willing to follow the conventions by expressing their oppositions to casino gaming, and hence the voting taste of the anti-gaming group was larger (i.e., t > t ). Combined that the emotional concern of the anti-gaming group was significant and the expected benefit of the beneficiary group was more or less neglected, the voters in the anti-gaming group were larger than those in the beneficiary group (see Figure 5) and hence the proposal was defeated in the 1974 referendum. Figure 5 The equilibrium state of beneficiary group in New Jersey

24 fter their defeat in 1974, supporters of casino gaming placed another referendum in 1976 that would permit private-owned casino in tlantic City only (see Figure 4). y limiting the location of casino in tlantic City, the expected economic benefit of the related business firms in tlantic City is foreseeable from the potential visitors and investors (i.e., R ). Hence the businessmen in tlantic City, especially the resort operators, attributed around $7, campaign funds in the ballot (Douglas 1977), which accounted for over half of the total funds ($1.3 million) and it alone was more than the whole campaign funds in 1974 ($576,). Moreover, unlike the 1974 referendum s focus on fiscal necessity, the beneficiary group targeted on the economic benefit of casino gaming to create obs and to boost the economy (Durham and Hashimoto 21). The legislators also provided efficient government signals by declaring that the gaming tax will spend on the

25 supporting programs for senior citizens, disabled, as well as on economic revitalization programs. Hence both the emotional and the monetary benefits of the beneficiary group increased, which resulted in a higher expected utility and a higher reward in 1976 than that in 1974 (i.e., R, E ). However, the voting taste may not change in a short run as it is inherent in the community. With a higher payoff, the expected benefit curve of the beneficiary group ( in figure 5) shifted outwards and hence the voters in the beneficiary group were larger in 1976 than in In comparison, the anti-gaming group had no difference with the 1974 referendum on moralistic arguments. Moreover, their corruption concern was defeated by the beneficiary group s declaration that the proposed casino is private-owned and hence the state government will not participate in its operation. Finally, many voters were convinced for the proposed casino s ability to revive the city (i.e., s ). E With a lower emotional value, the expected benefit curve of the anti-gaming group ( in figure 5) shifted inwards and hence the voters in the anti-gaming are smaller in 1976 than in Consequently, * was larger than i* and the casino proposal was approved by a 57% to 43% vote in the 1976 referendum. Comparing the two referendums in New Jersey, it s clear that the expected monetary benefit played a more concentrated role in deciding the casino legalization result, such as in the 1976 referendum, which may induce the departure of public

26 choice (e.g., casino legalization) from social choice (e.g., prevailed negative image of casino gaming). Nevertheless, if the expected benefit is not clearly stated, which may partly due to the absent of government signaling, the voting taste/emotional concern turns to be the key factor and hence the public choice (e.g., casino prohibition in the 1974 referendum) would be identical to the social choice. 4.2 Taiwan s case Similar with New Jersey s experience, the expected monetary benefit of casino legalization also played an important role in deciding the legislation result of casino gaming in Taiwan. In 29, Taiwanese government passed a new casino regulation, which stated that legalized casino can be built on offshore islands with the passage of local referendum. Following this new regulation, Penghu was the first to hold a referendum on a tourist casino proposal in 29, although it was then defeated by the local voters. In 212, however, Matsu proposed another casino plan and was able to be passed (see Figure 6). Figure 6 The voting result of Penghu and Matsu for casino proposal

27 Indeed, Penghu has a well-established infrastructure and industry base with abundant natural resources. Nevertheless, because of the global financial tsunami, the local government suffered from a financial deficit (Tsai and Shiue 21). Hence the government would like to legalize casino to foster the economic growth by attracting tourisms and creating new obs (see Figure 7). The maor supporters of the casino proposal are the governors and local business groups, who expected that the casino will attract 5 million visitors a year, almost 1 folds of the current level (around 5, visitors in 28). Figure 7 The interest groups in Penghu and Matsu

28 However, the anti-gaming group was quite averse to this argument when they declared that the local infrastructure can not afford this large load, which may deteriorate their quality of life. lternatively, they mentioned that Penghu can have other choices to develop tourism, such as to develop a low-carbon island with green energy, which can better protect their environment (Wu 29). Moreover, they argued that the casino legalization will only benefit foreign investors, who are mainly targeted on short-term profits rather than the region's long-term development. Consequently, the expected benefit of the proposed casino only concentrated on the government and the oversea casino operators/investors, rather than the community. To this rationale, the members in the beneficiary group were quite limited (i.e., b is

29 small) and, according to equation (7), the resultant voters (i.e., ) were relative small as well. On the contrary, the members in the anti-gaming group (i.e., a) were relatively large and hence the voters in the anti-gaming group (i.e., i), who are motivated by the emotional values, were large. Combined that the community may not want to change their current status as the tourism industry in Penghu was well-developed (i.e., t > t ), the anti-gaming group was able to defeat the casino proposal in Penghu (see Figure 8a). Figure 8 The equilibrium states of casino legalization in Taiwan

30 In comparison, Matsu has a less developed infrastructure, but its geographic advantage, which is close to the China s southern coast, made it possible to attract Chinese gamblers as a casino destination. Hence Matsu successfully set a casino proposal in local referendum in 212. Different from Penghu, the referendum in Matsu stated clearly the community s benefit from legalized casino, which included direct cash refund, huge investment on local infrastructure, etc (see Figure 7). s the expected benefit has efficiently diffused in the community (i.e., R ' ), the members in the group increased as well (i.e., b ' ) and hence more voters are willing to support casino gaming (i.e., ' ). The anti-gaming group in Matsu, on the other hand, did not have efficient strategies to struggle against the proposal other than suspected that the promises by the government/operators can not be realized. However, as the members in the beneficiary group increased, the size of anti-gaming group decreased (i.e., a ' ) and hence did not have enough power to win the referendum (i.e., i ' ). Moreover, as the Matsu s income level was quite low, the community may more willing to change their status by legalizing casino gaming (i.e., t ' > t '). Consequently, Matsu was able to approve the casino proposal as the first casino destination in Taiwan (see Figure 8b). The two referendums in Penghu and Matsu indicated that, other than the expected benefit, the group size is also important in the progress of casino legalization. If the - 3 -

31 expected benefit can be spread more widely in the community, such as the case in Matsu, the beneficiary group s size can be increased, which may provide a solid base for the potential supporters. If, on the contrary, the expected benefit of casino gaming is concentrated on a certain group, as the case in Penghu, the maority may ust comply the conventions to play against casino. 5. Conclusions and remarks With reference to public choice theory, especially the group s voting behavior, this paper is able to formulate a theoretical framework on the progression of casino gaming, which is further examined by the experience in New Jersey and Taiwan. It is revealed that as the process through which a public choice is arrived for casino gaming is a stable state for various interest groups, the industry s progression represents a compromise of both monetary and non-monetary interests and their changes over time, instead of a sole economic consequence. Indeed, the motivation to participate in casino legalization process is varied across different groups. The beneficiary group, which includes the governors, the casino operators, the related tourism industries, etc, are mainly concerned with the direct economic benefit (i.e., R ) from casino gaming. While the anti-gaming group,

32 which is comprised of church groups, religious groups, local service industries, etc, are motivated, to a large scale, by the emotional and ethical concerns (i.e., E ). The experiences in New Jersey and Taiwan not only verified the aforementioned model, but also provided valuable policy suggestions for the urisdictions who are intended to legalize casino in the near further. It implied that it s an efficient strategy for the government, especially for those countries that have a large religious people and conservatives, to state clearly the expected benefit of the mass community with casino legalization. It s evident that the more people aware what they will benefit from casino gaming, the more support the government will have. This model can also be applied to the progress of casino gaming in other urisdictions, although modifications are needed. For casino legalization process with legislative action, for example, the application may ignore the community and consider the interests of government and related business firm only. Moreover, the local characters, like the political circumstances and the current economic situation, can also affect the legislative result of casino gaming in the global market. In conclusion, the public choice model of casino legalization can reveal the current expansion of casino gaming in the global market, but is by no means a general rule for its progression. Hence it s crucial for the further researches to develop specific models, which is suitable to a given region, with reference to its specific characters

33 References rrow, K. J. (1951). Social Choice and Individual Values. New York, Wiley. ecker,. S. (1983). " Theory of Competition mong Pressure roups for Political Influence." The Quarterly Journal of Economics, 98(3): lankart, C.. and.. Koester (26). "Political Economics versus Public Choice Two views of political economy in competition." Kyklos 59(2): uchanan, J. M. and. Tullock (1962). The Calculus of Consent: Logical Foundations of Constitutional Democracy. nn rbor, niversity of Michigan Press. Coase, R. H. (196). "The Problem of Social Cost." Journal of Law and Economics 3: Cooper, J. (1974). The Press, October 31,1974,P9. Douglas,. (1977). The Selling of Casino ambling. New Jersey Monthly,January, 1977: 23. Dunnell, C. (1975). y the eautiful Sea: The Rise and High Times of That reat merican Resort, tlantic City. New York, Knopf. Durham, S. and K. Hashimoto (21). The history of ambling merica: alancing Costs and enefits of Legalized ambling, Prentice Hall. Eadington, W. R. (1982). "The evolution of corporate gambling in Nevada." Nevada Review of usiness and Economics Spring Eadington, W. R. (1995). "Economic development and the introduction of casinos: Myths and realities." Economic Development Review 13(4): Eadington, W. R. (1999). "The Economics of Casino ambling." The Journal of Economic Perspectives 13(3): Ederington, J. and J. Minier (24). "Is environmental policy a secondary trade barrier? n empirical analysis." Canadian Journal of Economics 36(1):

34 azel, R. C. and W. N. Thompson (1996). "Casino gamblers in Illinois: Who are they?" NLV manuscript. oodman, R. (1994). Legalized gambling as a strategy for economic development. Northampton, M:, nited States ambling Study. rinols, E. L. and J. D. Omorov (1996). "Development or Dreamfield Delusions: ssessing Casino ambling's Costs and enefits." Journal of Law and Commerce 16(1): rinols, E. L. and J. D. Omorov (1996). "Development or dreamfield delusions? ssessing casino gambling s costs and benefits." Journal of Law and. Commerc 16: Karmel, J. R. (28). ambling on the merican Dream: tlantic City and the Casino Era. London, Pickering & Chatto. Koh, W. (24). n integrated resort - casino for Singapore: ssessing the economic impact. IPS Forum on the Casino Proposal. Morton, R.. (1991). "roups in Rational turnout models." merican Journal of Political Science 35(3): Olson, M. (1965). The Logic of Collective ction. Cambridge, Harvard niversity Press. Peltzman, S. (1976). "Toward a More eneral Theory of Regulation." Journal of Law and Economics 19(2): Riker, W. H. and P. O. Ordeshook (1968). "a theory of the calculus of voting." merican Political Science Review 62: Sauer, R. D. (21). "The political economy of gaminf regulation." Managerial and Decision Economics 22: Stern, D. I. (1993). "Historical path-dependence of the urban population density gradient " The nnals of Regional Science 27(3):

35 Sternlieb,. and J. W. Hughes (1983). The tlantic City amble, Harvard niversity Press. Stigler,. J. (1971). "The Theory of Economic Regulation." The ell Journal of Economics and Management Science 2(1): Tsai, C.-Y. and Y.-C. Shiue (21). "The study of impacts and cognition for the attitude and intentions towards the Penghu casino industry development." frican Journal of usiness Management 4(1): Tullock,. (1959). "Some Problems of Maority Voting." Journal of Political Economy 67: dehn, L. (1995). The Limits of Public Choice: Sociological Critique of the Economic Theory of Politics, Routledge. Walker, D. M. (27). The Economics of Casino ambling. Milledgeville,, Springer. Walker, D. M. and. H. arnett (1999). "The Social Costs of ambling: n Economic Perspective." Journal of ambling Studies 15(3): Weschler, L. F. (1982). "Review: Public Choice: Methodological Individualism in Politics." Public dministration Review 42(3): Wu, L. (29). Penghu residents nix idea of opening casinos in their county. Taiwan News. Retrieved at:

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