The social costs of gambling


Problem Gambling Social Cost Pathological Gambler Government Spending Gambling Behavior 
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  1. 1.
    The development of gambling from “vice” to accepted entertainment is chronicled by McGowan (2001).Google Scholar
  2. 2.
    The American Psychiatric Association (APA) estimates that between 1–3% of adults become addicted to gambling (1994, p. 617). There is a significant literature on this issue including the following, cited in Shaffer, Hall, Walsh, and Vander Bilt (1995): Lesieur (1989), Lesieur and Rosenthal (1991), Volberg (1994), and Volberg and Steadman (1988). Also see Eadington (1989, 1993), Goodman (1994a, 1995a), Grinols (1995a), Lesieur and Blume (1987), Shaffer and Hall (1996), Volberg (1996), Volberg and Steadman (1989), and Walker and Dickerson (1996). It is generally accepted that there is a sample of the population that gambles to such an extent that it disrupts their professional or personal lives.Google Scholar
  3. 6.
    Two such conferences were the Whistler Symposium (2000, Whistler, B.C., Canada), the papers of which were published in Journal of Gambling Studies, 2003; and the 5th Annual Alberta Conference on Gambling Research (2006, Banff, Albert, Canada), papers forthcoming (Williams, Smith, and Hodgins 2007).Google Scholar
  4. 7.
    Just as objective criteria are useful in estimating the prevalence of pathological gambling, objective criteria are important for the measurement of social costs. Harberger (1971, p. 785) makes this point in the context of welfare economics in general and cost-benefit analyses in particular: “Just as the road-construction standards that a team of highway engineers must meet can be checked by other highway engineers, so the exercise in applied welfare economics carried out by one team of economists should be subject to check by others.”Google Scholar
  5. 9.
    This definition is given in any text that addresses welfare economics. For other examples, see Just, Hueth, and Schmitz (1982) or Varian (2006).Google Scholar
  6. 11.
    For related discussions, see Baumol and Oates (1988), Bhagwati (1983), Bhagwati, Brecher, and Srinivasan (1984), Johnson (1991), Krueger (1974), Mueller (1989), Posner (1975), Tollison (1982), and Tullock (1967).Google Scholar
  7. 12.
    This type of exposition is used by Dixit and Grossman (1984). A slightly more technical presentation would include a discussion of relative prices, input coefficients, and preferences. See any intermediate microeconomics text for more details on the foundations of these models.Google Scholar
  8. 14.
    Behavior that involves attempts to obtain or prevent wealth transfers is generally referred to as “rent seeking” discussed in more detail in Chap. 7. Also see Johnson (1991) and Mueller (1989) for extensive discussions.Google Scholar
  9. 15.
    Becker argues that, in the case of a competitive crime market, the value of the resources used in producing locks and paying police can be assumed to approximate the social cost of the crime (1968, p. 171, note 3; italics added).Google Scholar
  10. 17.
    The amount by which the full cost of a tax exceeds the value of revenues collected is often referred to as the “deadweight loss” or “excess burden” of the tax. Varian (2006, pp. 300–302) provides a (non-technical) graphical and verbal explanation of the deadweight loss from taxes.Google Scholar
  11. 18.
    Dixit and Grossman (1984) use a similar example but do not show a contraction of the PPF. Carbaugh (2004, Chap. 2) explains that the axes in the PPF model give a scale for output per unit of input resource. Social costs effectively reduce productive capacity (given input endowments) since production is diverted to some other use, which would be unnecessary in the absence of theft.Google Scholar
  12. 20.
    McGowan (1999) notes this is a utilitarian interpretation of wealth transfers.Google Scholar
  13. 21.
    For example, see Grinols and Omorov (1996), Grinols and Mustard (2001, 2006), LaFalce (1994), and Thompson (1997).Google Scholar
  14. 22.
    Seminal work in this area was by Jacob Viner (1931).Google Scholar
  15. 23.
    The issue is a bit more complicated than the discussion here implies. Whether society’s wealth is reduced by the pollution depends upon whether the pollution is marginally relevant. For a discussion of the importance of marginally relevant externalities, see Barnett and Kaserman (1998).Google Scholar
  16. 26.
    For more detailed discussions of externalities, particularly the distinction between pecuniary and technological externalities, see Barnett (1978, 1980), Barnett and Bradley (1981), Barnett and Kaserman (1998), and Baumol and Oates (1988, Chap. 3, especially p. 30).Google Scholar
  17. 27.
    Baumol and Oates (1988, p. 30) write, “the price effects that constitute pecuniary externalities are merely the normal competitive mechanism for the reallocation of resources in response to changes in demand or factor supplies.”Google Scholar
  18. 28.
    Grinols and Mustard (2001) also illustrate confusion about externalities.Google Scholar
  19. 29.
    McCormick’s (1998) discussion of “uncompensated social costs” is a useful complement to this section. The private consequences issue is dealt with in more detail by Eadington (2003).Google Scholar
  20. 30.
    In addition, see “Casinos in Florida” (1995), Tannenwald (1995), and U.S. House (1995).Google Scholar
  21. 31.
    See Baumol and Oates (1988) for a complete discussion of externalities.Google Scholar
  22. 32.
    More recent comprehensive studies by NORC (1999) and the NGISC (1999) are similar in this respect.Google Scholar
  23. 33.
    It is for this reason that their work is scrutinized by Walker and Barnett (1999) and Walker (2003).Google Scholar
  24. 37.
    At the Whistler Symposium (2000) several psychologists informally told me that the term “psychic cost” is “offensive.” No offense is intended.Google Scholar
  25. 39.
    See ACIL (1999) on this issue.Google Scholar
  26. 41.
    Walker (2004) gives the example that a gambler bets an average of $1,000 in order to lose $100 at slot machines with a 90% pay-out.Google Scholar
  27. 42.
    Grinols and Mustard (2001) resurrect the “abused dollars” concept, but define it differently than Politzer et al. (1985).Google Scholar
  28. 44.
    See “Casinos in Florida” (1995), Goodman (1995b), Kindt (1994), Politzer et al. (1985), and Thompson et al. (1997).Google Scholar

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© Springer-Verlag Berlin Heidelberg 2007

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