States Playing “Race to the Bottom” with Casinos

Image Source: (Syracuse Journal, September 18, 1891) “A romanticized cutaway sketch of an early Erie Canal packet boat.”

That the amendment proposed to the NYS Constitution for 2013 would greatly increase the occurrence of problem gambling and gambling addiction in New York is a strong argument against its utility.  Another is that it would if passed set neighborhoods and other community levels against each other in hostile and envious competion  where everyone loses in the end.  This can be framed as a Prisoner’s Dilemma, a staple in game theory.

In a worst-case scenario (all prohibitions except number of new commercial casinos amended out),  gambling companies would try to site themselves anywhere they want in New York where they find a receptive community.  This process would pit regions and communities against each other in a deadly competition with neighbors to host a casino whose tax payments to the locality supposedly make up for its detriments.   Carefully analyzed, they might not, but would look a lot better than nothing,  the portion for adjacent towns without a casino.   Every abutting town without its own casino would see itself as a loser,  made to shoulder almost equally  the social costs like spreading crime yet get none of the (at least short-run) local tax inflow on which  the casino host counts .   This realization motivates a “race to the bottom.”   It is a race because when the market gets saturated,  latecomers are disadvantaged.  It runs downward in mistaking  increased cash flowthrough  (which enriches some parties and drains others) for true economic development which by definition increases the welfare of all.

The illustration recalls that The Erie Canal, costly and controversial, did bring true economic development to New York State.    The Sands Casino,   Bethlehem PA , stands in sharp contrast.  It was touted as a community reviver.  Four years later, Bethlehem faces rising property taxes and a budget shortfall.

“Prisoner’s Dilemma” (PD) is now a staple of game theory.  In one of many variations two prisoners with the same length of sentence to serve are given the same choice: inform on the other (falsely or truly, it makes no difference) or keep silent.     They cannot communicate.   Each is told the payoff  to  her or him for a particular choice.  The payoff depends on what the other  chooses at the same time.  If both stay silent,  they each  get a much reduced sentence.   If A stays silent and B rats her out, B goes free and A gets her sentence doubled.  If B says nothing  and  A betrays him, then A goes free and B’s sentence is doubled.  If both inform on the other,  they each get an equal sentence, longer than would be meted out for mutual cooperation,  less than that which the silent one would get when betrayed.

Intuitively,   most people would say both should stay silent.   Logic, however, tells both to betray.  For either,  the utility of betraying is greater than that of protecting NO MATTER WHAT THE OTHER PERSON DOES.    If you don’t believe me (and you won’t at first) plot the payoffs in a box with two rows for A (one called “cooperate,” one “betray”)  and two columns with the same two labels  for B.  Write in each of the four cells (small boxes)  the payoff  to A and that to B.   It is not rational to cooperate, to try for mutual benefit,   if there is any doubt that the other person will too.

The seeming lesson of Prisoner’s Dilemma (when in doubt, don’t be honorable) comes up everywhere — in arms control, in truce negotiations, in nuclear weapons reduction talks, in climate change abatement talks, in interstate commerce.   Getting to mutual benefit requires well-founded trust,  rarely found between two nations or among  contiguous states.   The game theory applies even when the rules change so that (for instance) one player’s choice is revealed to the other.  When one side’s plan to betray is known  it seems  that the other party should do likewise.    If New York State  knows that western Massachusetts  is  receptive to a casino,  it must by this theory try to entice to NY by building its own casino(s)  those who would use the one(s)  in MA or persuade the Massachusetts investors to bypass that state altogether.   The two states are playing PD  by the rules, racing to capture the market until it saturates and sinks.

Under the current NY constitution, happily, there is no call for communities inside the state to play PD with each other.  Passage of the amendment, however,  would fragment relationships between townships, between neighborhoods  Think how the prospect of “fracking” can turn neighbors, even family members,  against each other.  One person’s “gain” (a lease) is another’s detriment.

Game theory, to adapt a phrase from  Rene Dubos (in Man Adapting)   is not destiny.  There is still a place in our society, our government, for honor, wisdom and social justice.  The people who and revised wrote our state constitution wanted it that way.   The Constitution as of now does not deny adult New Yorkers the opportunity  to play legal slot machines in-state; there are many thousands of them.   Enactment of the amendment,  however, in expanding the range of casinos in-state,  would increase the risk that persons with little or no previous experience in gambling would become problem gamblers or addicts.  It would also open the door for a nasty round of communities playing “race to the bottom” with each other.  This is an even  sadder situation than states playing that dirty (and ultimately lose-lose) game with each other.  States have been doing this a long time.  Smaller units of society should not be forced  into the  pit.

The opinions in this essay are those of the author, Stephen Q. Shafer MD MPH.  They are not necessarily shared by all members of Coalition Against Gambling lin New York



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