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Pakko1 takes issue with our paper “Smoke-free law did not affect revenue from gaming in Delaware,”2,3 arguing that our methods were not sufficient because we failed to control for serial correlation and used a method of controlling for heteroskedasticity that did not meet his approval. We found these concerns odd, since in his original analysis claiming that there were negative effects of the Delaware law (published on the internet as a working paper4) he did not correct for either serial correlation or heteroskedasticity. Indeed, correcting Pakko’s original model for heteroskedacity led to the conclusion that the Delaware smoke-free law was not associated with a significant change in revenues.
Now, Pakko has produced yet another, more complex statistical model, which he uses to repeat his argument that the Delaware law had an adverse economic impact. Pakko does not present any statistical evidence that his new model is correctly specified, nor has he retracted his earlier model.
Pakko also ignores the explanation given by the Delaware racinos in official filings with the US Securities and Exchange Commission, which did not even suggest that the smoke-free law had any effect on its revenues. As we noted in our paper,2 the 7% decrease in revenue for its three casinos in Atlantic City and the management fees from Dover Downs was mainly due to inclement weather.5 The online summary of the filing5 did not mention the smoking restrictions as a reason revenue was down from the first quarter of the previous year.2 In any event, as we showed in our paper,2,3 this reduction was not significantly significant—that is, it is within the usual random fluctuation in the revenue stream.
Finally, Pakko does not address the current reaction of the racinos to the smoke-free law. The racinos are not looking for ways to circumvent the law, as would be expected if the revenues were in fact suffering as badly as he suggests. Instead, Dover Downs is featuring their smoke-free environment in its advertising (fig 1). If the smoke-free environment were a drain on revenues, it seems odd that Dover Downs would advertise it.