pursuing economics by other means

Another news item that all but requires public commentary is this item from yesterday that goes into the financial details of a proposed contribution to a neighborhood group from one of the potential casino owners. Per the article, once tax breaks are taken into account, the donating company will get back $1.05 million of a proposed $1.5 million earmarked for the neighborhood group. We will chalk this one up under the category of things that make you go 'hmmmm'.

There is a bigger issue here, well, many bigger issues... This whole casino license thing has an interesting analogy to what happened when the City of Pittsburgh awarded its first cable license a quarter century ago, an important piece of history unto itself. (I once wrote about the technology and infrastructure issues involved).. Until that time, there had not been cable service within the City of Pittsburgh. The comparable point is that the city got to pick which cable company got the whole license for a local cable monopoly covering nearly a half million people... something obviously worth a lot of money to the winner. It was probably the last really big license of value given out purely by public fiat in the region. Then and now, there was no auction per se for the potential cable operators to bid on, which just forced them to 'bid' by other means. This meant that each cable company wound up 'partnering' with a wide range of community groups who lined up in support of one company or another. Various groups expected to get sundry 'benefits' if their group won so they weighed in with their political support. The local political battles at the time were far greater than the political battle over the casino license now. That may seem strange but realize that, unlike the casino license which will ultimately be decided in Harrisburg, the Pittsburgh cable license was all a local decision. But overall, the dynamics of how the potential license winners are intereacting with local groups sure appears to be the same as what happened back then.

All this fits perfectly with what the Coase theorem in economics says should happen when markets to not fully exist for a product or its various externalities on third parties. Basically, there can be a set of side payments between the various parties to provide compensation where markets are missing. All of these 'benefits' for various community groups are pretty clearly side payments that Coase theorized on. amazing that. The result should still be an efficient outcome. All sounds great, right? The problem is that in the absense of any legal or regulatory framework to set these payments, one can arguably characterize these side payments in another way.


2 Responses to "pursuing economics by other means"

Mark said... 7/21/2006 11:29 AM

Where is Mike Madison? It sounds like some radical has taken over Pittsblog.

But the truth is, Chris, you didn't actually use the words "bribery" and "graft," so it all seems rather reasonable. Plus, you threw in an economist. Mike would have done that.

Much better to say the "Coase theorem in economics" than to say someone's palm is being greased.

Perhaps I shouldn't be so facetious about this, but even if we did have an auction situation, we'd be far from a free market.

I don't think the repeal of the current gaming law will happen, so my suggestion is this: auction off about 30,000 additional licenses for video poker. This would dilute the value of the casinos and consequent political gaming, raise additional cash (perhaps $75 million per year), and spread the rewards and responsibility for gambling in Pennsylvania.

John Morris said... 7/23/2006 9:05 PM

No! the government has to issue just one licence to make sure that the casino is built badly, has bad shows and maximizes coruption.

Hopefully some of the tax money they get from the casino is used to make sure that the downtown developers build shoddy buildings. I mean after they support the bad sports team.

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Pittsblog 2.0 is written by Mike Madison, a law professor at the University of Pittsburgh. Send email to michael.j.madison[at]gmail.com. Mike also blogs at Madisonian.net, on law and technology. Chris Briem of Null Space drops by from time to time.

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