Friday, July 13, 2007

When agglomeration makes things worse

I have just returned from the Asian Real Estate Society conference in Macao. The conference was very good, as was the food. The small, historic center of Macao, is very beautiful.

But Macao is largely about gambling--the claim is that it has higher gambling revenue than Las Vegas. There are already lots of glitzy casino-hotels. The conference venue was at one of them--the Wynn. Given the construction cost of the place and the posted room rates, it must be the case that it makes its money on the casino.

I have a (small) libertarian streak in me; that streak tells me it is none of my business is people want to blow their money on gambling. I myself go to Santa Anita every other year or so and bet as much as $18 on horse races. But there is a well established literature ( that there are gambling addicts--and it is here that there is an agglomeration problem.

Around the casinos of Macao, one finds large numbers of two kinds of retail outlets: pawn shops, and ATM machines. This makes complete business sense--if people need to feed the gambling beast, places that provide money should cluster near casinos. The problem is that it is like putting free booze into the hands of an alcoholic. Even worse is the fact that some casinos have ATM machines on the premises.

I have no illusions about the possibility of eliminating problem gambling, but it might be worthwhile to make it a little less easy to do. Limiting the number of ATM machines and banning pawn shops within a certain radius of a casino might be a start.


Anonymous said...

Interesting notes concerning what surrounded the conference... but anything of interest from the conference itself??

Richard K. Green said...

Yes, there were a number of good papers. One by Yongheng Deng on the Chinese Mortgage Market in its infancy, and one by Tim Riddiough and Joe Williams explaining the existence of percentage rents in shopping centers rents were particularly good.

Sheridan Titman also gave a nice talk on cap rates and whether they can remain as low as they are (he thinks they can, but I am skeptical). And I got to discuss a paper by Poh Har Neo on whether REITS in Japan and Singapore benefit from accerition. The answers seem to be yes and no; Ms. Neo is a Ph.D. student at National University of Singapore, and did a wonderful job presenting. It is fun to see students perform well.

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