Chapter 13: Economics of gambling
Robert Simmons This chapter applies economic analysis to the growing gambling sector. Over the past 50 years, gambling has become legally recognized in all industrialized economies with an increasing variety of gambling products now on oﬀer. Technological change, primarily via the Internet, is likely to sustain this growth path. The chapter begins with a brief summary of the scope and composition of gambling in some major jurisdictions. In Section 2, we then pose the fundamental economic question of why people gamble at all, particularly in lottery games where the probability of winning the jackpot prize is of the order of one in 14 million. Next, in Section 3 we consider economic reasons why states and governments may opt to legalize forms of gambling. A public choice approach is highlighted. In Section 4 we examine some contemporary policy issues involved in regulation and deregulation of gambling, including the social beneﬁts and costs of gambling, the use of state and government revenues from gambling for particular purposes and the threat to government tax revenues and government regulation posed by the growth of Internet gambling. Section 5 concludes the chapter. 1 The scope of gambling worldwide Across the world, gambling covers many products and takes both legal and illegal forms. In the USA there are presently only three states where legal gambling does not take place within their borders (Hawaii, Tennessee and Utah). The total amount wagered in 2001, termed handle within the industry, was estimated at US $859 billion. Deductions...
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