The Law and Economics of Native American Casinos

• Publication year: 2021
• Citation: Vol. 78

78 Nebraska L. Rev. 263. The Law and Economics of Native American Casinos

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Paul H. Brietzke*
Teresa L. Kline**

The Law and Economics of Native American Casinos

TABLE OF CONTENTS

I. Introduction .......................................... 263
II. Gambling ............................................. 266
A. Externalities ...................................... 268
B. Rent-seeking ...................................... 274
C. Distributive Effects ................................ 284
III. Indians ............................................... 287
IV. Coasian Games ....................................... 292
A. Cabazon (1987).................................... 301
B. The Indian Gaming Regulatory Act of 1988 ........ 303
C. Seminole (1996) and After ......................... 311
V. International Dimensions ............................. 321
VI. Sovereign Dilemmas .................................. 333
VII. Conclusions ........................................... 344

I. INTRODUCTION

Legalized gambling is the fastest-growing industry in the United States (perhaps the world) during the 1990s, and Indian 1 casinos are the fastest growing segment of this industry.2 While "[t]his once offi

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cially criminal activity is now being chosen by business and commu-nity leaders as a lynchpin for economic development,"3 William Safire, paraphrasing Lord Acton, argues that "[g]ambling tends to cor-rupt; political power purchased by gambling money corrupts abso-lutely." 4 Many fascinating jurisprudential and public policy issues emerge and, after two introductory sections, "Gambling" and "Indi-ans," these issues are analyzed in Part IV: "Coasian Games." The Coase Theorem 5 is treated as central to law and economics analyses, and as a metaphor 6 about what does and should happen when repre-sentatives of the seven players drop in and out of a poker-like game

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from time to time. Betting and bluffing by these players resembles the economists' "rent-seeking" behavior 7 in interesting ways, and some of the Coase's amoral "bribes" become the corruption that troubles Safire.

The three major players are sovereign in varying and often confus-ing degrees: the federal government, the states (all but Utah and Ha-waii have legalized gambling in varying degrees), and the tribes. Four other players frequently influence the course of play: people and groups opposed to extending legalized gambling for religious, moral, or policy reasons; local governments, which express their views through government-sponsored referenda or (on Indian gaming) to the Department of the Interior;8 non-Indian casinos and other gambling enterprises, which hope to gain and/or protect a market power in a particular locality; and an amorphous international human rights community, keen to enhance the tribes' "rights" to self-determination and to development. The latter community may be unfamiliar to American lawyers and economists, and it is thus accorded a separate, section: "International Dimensions." Analyses are brought together in Part VI, "Sovereign Dilemmas," where reforms are suggested because existing laws are found to be allocatively inefficient, distributively in-equitable, and developmentally unsound. While a neoclassical law and economics focuses on allocative efficiency almost exclusively,9 dis-tributive issues and developmental potentials are sketched in this ar-ticle because they seem particularly appropriate to the topic.10

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II. GAMBLING

"Suddenly, the world is gambling."11 In 1993, an estimated $394 billion was wagered in the United States; tribally-owned facilities ac-counted for 3% to 6% of these wagers, with government-owned facili-ties (including lotteries) accounting for 36%.12 Residents of Nevada and New Jersey lead the wagering leagues, and Minnesotans come in third at $558 per capita, in 1990. 13 There is much analysis in the literature, but little reliable data and few unbiased studies. Survey-ing fourteen studies on the economic impact of gambling, Robert Good-man concludes that ten of them are "unbalanced or mostly unbalanced"14 -designed to support the self-interested positions of the various players.

States are important players, increasingly engaging in the "state capitalism" that is most evident in Nevada. Gambling accounts for half of employment and 40% of state revenue there, and Nevadans hope that gamblers will leave their money and take their addictions (and most other social costs) home with them.15 The Chicago Tribune observed in 1992, "Illinois is already in the game. The only question is: Do we play to win?"16 A later article stated that do-gooder organi-zations, among others, in Ohio "choose to ignore that Chicago is in a

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life-or-death competition for economic survival."17 Louisiana's hopes that gambling revenues would overcome the fiscal crises of the 1980s were disappointed, and the State has now assumed the "schizo-phrenic" role of many other states: "While their official role was to reg-ulate gambling, they are now using gambling to produce revenues and jobs"-to say nothing of Coasian bribes-while encouraging residents and tourists to gamble.18

As is the case for "liquor stores, doctors, banks, milk producers, holders of taxi medallions, accredited schools, and morticians," regula-tion enables incumbent gambling enterprises to maintain their in-comes above competitive levels-until a market "saturation" occurs.19 Gaming revenues are increased through a greater "penetration" of these protected markets: more seductive advertising, and more excit-ing (and probably more addictive) games.20 Some economists will thus agree with Paul Samuelson:

There is . . . a substantial economic case to be made against gambling. It involves simply sterile transfers of money or goods between individuals, creat-ing no new money or goods. Although it creates no output, gambling does nevertheless absorb time and resources. When pursued beyond the limits of recreation, where the main purpose after all is to 'kill' time, gambling sub-tracts from the national income.21

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Then-Senator Paul Simon quoted Samuelson's view as a justification for more stringent federal regulations,22 and Jack Van Der Slik adds that since gambling "produces . . . no new wealth, . . . it makes no genuine contribution to economic development."23

With respect, the Samuelson/Van Der Slik view is wrong or at least badly overdrawn. Citizens of Chicago seem to agree with it, however: they see claimed casino benefits as a "redistribution and not a net gain."24 As "entertainment" (an additional "output," contra Samuel-son), $100 sunk into a slot machine is (a little) more likely to provide a financial payoff than $100 sunk into an opera ticket. Both provide psychic payoffs, or else there would be no repeat gambling or opera customers, and it can be thought a matter of "taste" for the customer or policymaker to prefer one payoff over the other. Both opera and gambling are produced (Samuelson's "time and resources") with vary-ing combinations of land (attenuated for an Internet gambling site), labor, capital, technology, entrepreneurship, and a host of "political" resources: chiefly legitimacy and philanthropic subsidies for opera, and regulation and often-hidden political subsidies for gambling.25 These resources are valuable only because of how people use them; owners are compensated according to (and sometimes beyond) their resource's "opportunity costs"; and any profits the activity generates reflect peoples' values by definition. These payoffs constitute "new money," contra Samuelson, and "new wealth" for someone, contra Van Der Slik. Even the Supreme Court seems to disagree with Samuelson and Van Der Slik, at least with regard to Indian casinos.26

A. Externalities

There are differences of course, between opera "buffs" and gam-bling "addicts" for example. Gambling is hedged about with many more rules; its entertainment value is (usually) not attributable to the

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talents of artists and artisans; and it is repeated rather than ex-hausted during consumption. Like opera, gambling provokes joy and despair, but it also "destroy[s] lives and erode[s] compassion."27 Op-era creates "externalities"-costs and benefits which cannot be di-rectly attributed to the parties to the transaction, such as an increased urban congestion and additional revenues for restaurants and parking garages-but gambling is easily distinguishable by the number and magnitude of the externalities it creates. Granted that gambling cre-ates wealth and a certain economic stimulus, can its negative exter-nalities (social costs) be adequately "internalized"-borne by gambling enterprises and/or the punters-under the two conventional models examined in turn: regulation,28 and additional negotiations among the players under the Coase Theorem?29

Like prostitution, abortion, and homosexuality, gambling is a con-sensual act that some consider harmful to the participants and to soci-ety. Because the data is scarce and perhaps biased, it is difficult to untangle other externalities from the attitudes of people and organiza-tions with religious or moral objections to legalized gambling. For ex-ample, the debate over Internet gambling will likely follow the pattern of arguments over Internet pornography because some people also think of gambling as a vice or sin. Gambling threatens a misdirection of breadwinners' attentions, by offering false alternatives to the puta-tive link between rewards and hard work. But in the 1980s and 1990s, a general public opposition to gambling has been relaxed through public exposure to worse "crimes," by desires for the tax relief that gambling revenues supposedly bring, and allegedly as a result of media-endorsed images of violence, of crime, and of morality being for the individual rather than for society.30 Nonetheless, and somewhat like the anguish...