IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/23969.html
   My bibliography  Save this paper

A Tale of Two Cities: Cross-Border Casino Competition Between Detroit and Windsor

Author

Listed:
  • Juin-Jen Chang
  • Ching-Chong Lai
  • Ping Wang

Abstract

We develop a framework to study analytically and quantitatively relentless cross-border casino competition with social-disorder and income-creation externalities. Two bordering casinos compete with each other for the external source of demand of recreational and problem gamblers from the neighboring city and the two city governments set their optimal casino revenue tax and gambler tax surcharge to maximize social welfare. We show that cross-border casino gambling makes aggregate casino demand more elastic despite the addictive nature of gambling. While a lower commuting cost favors a cross-border casino in a city with a weaker taste for gambling, the positive scale effect of its own population may be offset by a negative effect on cross-border gambling. By calibrating the model to fit the Detroit-Windsor market, we find that cross-border competition induces both cities to lower casino taxes to below their pre-existing rates, while the optimal tax mix features a shift from the tax surcharge to the casino revenue tax. Our counterfactual analysis suggests that lowering the commuting cost to the pre-911 level need not have favored Windsor, whereas increasing Detroit's population to the 2000 level would have only given Windsor a modest welfare gain.

Suggested Citation

  • Juin-Jen Chang & Ching-Chong Lai & Ping Wang, 2017. "A Tale of Two Cities: Cross-Border Casino Competition Between Detroit and Windsor," NBER Working Papers 23969, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:23969
    Note: IO PE
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w23969.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Douglas M. Walker & Todd M. Nesbit, 2014. "Casino Revenue Sensitivity to Competing Casinos: A Spatial Analysis of Missouri," Growth and Change, Wiley Blackwell, vol. 45(1), pages 21-40, March.
    2. William R. Eadington, 1999. "The Economics of Casino Gambling," Journal of Economic Perspectives, American Economic Association, vol. 13(3), pages 173-192, Summer.
    3. Jim Landers, 2008. "What's the potential impact of casino tax increases on wagering handle: estimates of the price elasticity of demand for casino gaming," Economics Bulletin, AccessEcon, vol. 8(6), pages 1-15.
    4. Daniel B. Suits, 1979. "The Elasticity of Demand for Gambling," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 93(1), pages 155-162.
    5. Kathryn L. Combs & Jaebeom Kim & Jim Landers & John A. Spry, 2016. "The Responsiveness of Casino Revenue to the Casino Tax Rate," Public Budgeting & Finance, Wiley Blackwell, vol. 36(3), pages 22-44, September.
    6. Juin‐Jen Chang & Ching‐Chong Lai & Ping Wang, 2010. "Casino regulations and economic welfare," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 43(3), pages 1058-1085, August.
    7. Bonomo, Vittorio A & Johnson, Dana J & Thompson, G Rodney, 1995. "The Impact of the," The Financial Review, Eastern Finance Association, vol. 30(1), pages 23-40, February.
    8. Nichols, Mark W. & Tosun, Mehmet Serkan, 2017. "The impact of legalized casino gambling on crime," Regional Science and Urban Economics, Elsevier, vol. 66(C), pages 1-15.
    9. Richard Thalheimer & Mukhtar Ali, 2003. "The demand for casino gaming," Applied Economics, Taylor & Francis Journals, vol. 35(8), pages 907-918.
    10. Raymond D. Sauer, 2001. "The political economy of gambling regulation," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 22(1-3), pages 5-15.
    11. Julie Smith, 2000. "Gambling Taxation: Public Equity in the Gambling Business," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 33(2), pages 120-144, June.
    12. Earl L. Grinols & David B. Mustard, 2001. "Management and information issues for industries with externalities: the case of casino gambling," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 22(1-3), pages 1-3.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chang, Juin-Jen & Fiedler, Ingo & Lai, Ching-Chong & Wang, Ping, 2021. "Cross-border casino competition, Externalities and Optimal Tax Policy: A Unified Theory with Quantitative Analysis," Regional Science and Urban Economics, Elsevier, vol. 88(C).
    2. Juin-Jen Chang & Ching-Chong Lai & Ping Wang, 2010. "Casino regulations and economic welfare," Canadian Journal of Economics, Canadian Economics Association, vol. 43(3), pages 1058-1085, August.
    3. Gu, Xinhua & Tam, Pui Sun, 2014. "Tax incidence and price discrimination: An application of theories to gambling markets," China Economic Review, Elsevier, vol. 28(C), pages 135-151.
    4. Juin-Jen Chang & Ching-Chong Lai & Ping Wang, 2004. "On the Public Economics of Casino Gambling," IEAS Working Paper : academic research 04-A005, Institute of Economics, Academia Sinica, Taipei, Taiwan.
    5. Richard Thalheimer, 2008. "Government restrictions and the demand for casino and parimutuel wagering," Applied Economics, Taylor & Francis Journals, vol. 40(6), pages 773-791.
    6. Xinhua Gu & Pui Sun Tam & Chun Kwok Lei & Xiao Chang, 2016. "The Economics of Taxation in Casino Tourism with Cross-border Market Power," Review of Development Economics, Wiley Blackwell, vol. 20(1), pages 113-125, February.
    7. David Paton & Donald S. Siegel & Leighton Vaughan Williams, 2002. "A Policy Response To The E--Commerce Revolution: The Case Of Betting Taxation In The UK," Economic Journal, Royal Economic Society, vol. 112(480), pages 296-314, June.
    8. Hasret Benar & Glenn Jenkins, 2008. "The economics of casino taxation," Applied Economics, Taylor & Francis Journals, vol. 40(1), pages 63-73.
    9. Kathryn L. Combs & Jaebeom Kim & Jim Landers & John A. Spry, 2016. "The Responsiveness of Casino Revenue to the Casino Tax Rate," Public Budgeting & Finance, Wiley Blackwell, vol. 36(3), pages 22-44, September.
    10. Melisa Bubonya & David P. Byrne, 2020. "Supplying Slot Machines to the Poor," Southern Economic Journal, John Wiley & Sons, vol. 86(3), pages 1081-1109, January.
    11. John C. Navin & Timothy S. Sullivan, 2007. "Do Riverboat Casinos Act as Competitors? A Look at the St. Louis Market," Economic Development Quarterly, , vol. 21(1), pages 49-59, February.
    12. David Forrest, 2013. "An Economic And Social Review Of Gambling In Great Britain," Journal of Gambling Business and Economics, University of Buckingham Press, vol. 7(3), pages 1-33.
    13. Valeria De Bonis & Alessandro Gandolfo, 2013. "The Italian Model of Gambling Taxation: Fiscal Policy Guidelines for the «Sustainable Development» of an Important and Controversial Market," Economia dei Servizi, Società editrice il Mulino, issue 3, pages 239-258.
    14. Richard Thalheimer, 2012. "The demand for slot machine and pari-mutuel horse race wagering at a racetrack-casino," Applied Economics, Taylor & Francis Journals, vol. 44(9), pages 1177-1191, March.
    15. Craig A. Depken & John M. Gandar, 2021. "Integrity Fees in Sports Betting Markets," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 47(1), pages 76-90, January.
    16. Richard Thalheimer & Mukhtar M. Ali, 2004. "The Relationship of Pari‐mutuel Wagering and Casino Gaming to Personal Bankruptcy," Contemporary Economic Policy, Western Economic Association International, vol. 22(3), pages 420-432, July.
    17. Richard Thalheimer & Mukhtar Ali, 2003. "The demand for casino gaming," Applied Economics, Taylor & Francis Journals, vol. 35(8), pages 907-918.
    18. Humphreys, Brad R. & Marchand, Joseph, 2013. "New casinos and local labor markets: Evidence from Canada," Labour Economics, Elsevier, vol. 24(C), pages 151-160.
    19. Ryan M. Gallagher, 2014. "An Examination of Cannibalization Effects within the Riverboat Gaming Industry: The Case of Illinois-Area Casinos," Growth and Change, Wiley Blackwell, vol. 45(1), pages 41-59, March.
    20. Jim Landers, 2008. "What's the potential impact of casino tax increases on wagering handle: estimates of the price elasticity of demand for casino gaming," Economics Bulletin, AccessEcon, vol. 8(6), pages 1-15.

    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:23969. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.