First off, if "state or local gaming regulations do not allow chopping of the prize pool" then this topic will not apply to you.
Players down to 4-handed in a tournament, all 4 players are in agreement that they want to chop the prize pool and you tell them no. Is this "old school" thinking, or is it something deeper? Are there TDs or Poker Managers who feel that it is in the casino's or players' interest to not allow the chop here?
Allow me a moment, if you will, to advocate on the side of not only allowing the chop but to facilitate the chop as soon as an agreement is struck:
1. Profitability. The poker room makes its money at time of buy-in, length of play doesn't increase profits like it does on cash play. If tournament ends early the casino makes money because you can either EO a dealer or use that dealer/table to open up a live table; this is especially important in smaller rooms where staffing and margins are tight.
2. Dealer downs. The fewer downs, the more the downs are worth. Higher down rate increases dealer happiness and a happy staff is never a bad thing.
3. Player satisfaction. Here's where guests service enters into it: I would never want to see a back-alley deal geting struck that could potentially leave a player screwed over. I wouldn't want to see players agree to chop for $1000 a piece on their own after the tournament's over and then have one player walk off and leave another player high and dry. The guest will project that dissatisfaction on your establishement regardless of how fair that projection is. If players make an agreement, it is in the casino's interest to ensure that agreement is met to increase the liklihood of guest satisfaction.
Are there any counter arguments to any of these points as to why you would not allow a chop in your room?