Gaming in the New Market Environment This page intentionally left blank Gaming in the New Market Environment Edited by Matti Viren Selection and editorial matter © Matti Viren 2008 Chapters © their authors 2008 Softcover reprint of the hardcover 1st edition 2008 978-0-230-50050-1 All rights reserved No reproduction, copy or transmission of this publication may be made without written permission No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London W1T 4LP Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act 1988 First published 2008 by PALGRAVE MACMILLAN Houndmills, Basingstoke, Hampshire RG21 6XS and 175 Fifth Avenue, New York, N.Y 10010 Companies and representatives throughout the world PALGRAVE MACMILLAN is the global academic imprint of the Palgrave Macmillan division of St Martin’s Press, LLC and of Palgrave Macmillan Ltd Macmillan® is a registered trademark in the United States, United Kingdom and other countries Palgrave is a registered trademark in the European Union and other countries ISBN 978-1-349-35270-8 ISBN 978-0-230-58261-3 (eBook) DOI 10.1057/9780230582613 This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Gaming in the new market environment / edited by Matti Viren p cm Includes bibliographical references and index Gambling industry Gambling Lotteries I Viren, Matti HV6710.G38 2008 338.4′7795–dc22 10 17 16 15 14 13 2008014546 12 11 10 09 08 Contents List of Tables vi List of Figures vii Acknowledgements viii List of Contributors ix Chapter Introduction Chapter When Welfare Economics and Gambling Studies Collide 23 Chapter Demand Issues in the Market for Lotto and Similar Games 54 Chapter Lottery Design Lessons from the Dismal Science 75 Chapter Lotteries as a Source of Revenue 99 Chapter Problem Gambling and European Lotteries 126 Chapter The Economics of Scale and Scope in the Lottery Industry 160 Chapter The Political Economy of Regulating Gambling 184 References 209 Index 221 v List of Tables 3.1 3.2 3.3 3.4 4.1 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 5.9 6.1 7.1 7.2 7.3 7.4 7.5 7.6 7.7 8.1 8.2 8.3 8.4 Summary of demand elasticities Regression results, UK Saturday Lotto sales (millions) UK Saturday Lotto sales regression Spending on Lotto and other models of gambling Estimated parameters of log sales equations Gross tax rates, EU lotteries Gambling revenues (£ million) and gross tax rates, UK Excise rates – UK National Lottery, alcohol, tobacco and petrol products Tax revenues, with and without the lottery Share of total income spent on ‘vices’, by income decile Share of spending on ‘vices’, by income decile Correlation coefficients of expenditures Why people play the National Lottery? What is ‘an excellent way to spend’ lottery money? A summary of the most common forms of offline commercial gambling Panel data estimates of the cost function for European lotteries Cross-section estimates from the European data Cost function estimates with the US data Change in cost shares over time in the US Marginal effect of sales on costs Further estimates of scale economies Some demand function estimates with the US data The variables and the main bookkeeping relations Names in Mental Health Disorders: A Public Health Analysis’ Annual Review of Public Health, 23: 171–212 Shaffer, H J., LaBrie, R A and LaPlante, D (2004) ‘Laying the foundation for quantifying regional exposure to social phenomena: considering the case of legalized gambling as a public health toxin’ Psychology of Addictive Behaviors, 18: 40–8 218 References Siegel, D and Anders, G (2001) ‘The impact of Indian casinos on state lotteries: a case study of Arizona’ Public Finance Review, 29: 139–47 Simon, J (1998) ‘Dreams and Disillusionment: A Dynamic Model of Lottery Demand’ In Four essays and a note on the demand for lottery tickets and how lotto players choose their numbers Florence: European University Institute Sing, M (1987) ‘Are combination gas and electric utilities multiproduct natural monopolies?’ The Review of Economics and Statistics, 69: 392–8 Skala, J (2004) ‘Money Laundering and Internet Gambling: A Suspicious Affinity’? In Cross Border Gambling on the Internet, 305–48 Research Conducted by the Swiss Institute of Comparative Law Schulthess: Geneva Smeaton, M and Griffiths, M D (2004) ‘Internet gambling and social responsibility: An exploratory study’ CyberPsychology and Behavior, 7: 49–57 Smith, J (2000) ‘Gambling taxation: Public equity in the gambling business’ Australian Economic Review, 33: 120–44 Smith, S (2008) ‘Lotteries as a source of revenue’ Chapter in this volume Spindler, C (1995) ‘The lottery and education, robbing Peter to pay Paul?’ Public Finance and Budgeting, 15(3): 54–61 Sproston, K., Erens, B and Orford, J (2000) Gambling Behaviour in Britain, Results from the British Gambling Prevalence Survey London: National Centre For Social Research Stranahan, H and Borg, M O (1998) ‘Horizontal equity implications of the lottery tax’ National Tax Journal, 51: 71–88 Suits, D (1977a) ‘Measurement of Tax Progressivity’ The American Economic Review, 67(4): 747–52 Suits, D B (1977b) ‘Gambling Taxes: Regressivity and Revenue Potential’ National Tax Journal, 30(1): 19–35 Suits, D B (1979) ‘The Elasticity of Demand for Gambling’ Quarterly Journal of Economics, 93(1): 155–62 Sung, N and Gort, M (2000) ‘Economics of scale and natural monopoly in the U.S local telephone market’ The Review of Economics and Statistics, 82: 694–7 Szakmary, A and Szakmary, C (1995) ‘State lotteries as a source of revenue: A reexamination’ Southern Economic Journal, 16(4): 1167–81 Swiss Institute (2006) Study of gambling services in the internal market of the European Union: Study carried out by the Swiss Institute of Comparative Law (dated April 24, 2006) Teeson, M., Degenhardt, L and Hall, W (2002) Addictions New York: Taylor & Francis Thompson, W N., Gazel, R C and Rickman, D (1996) ‘Social and legal costs of compulsive gambling’ Gaming Law Review, 1: 81–9 Train, K (1995) Optimal Regulation: The Economic Theory of Natural Monopoly Cambridge MA: The MIT Press Vasche, J D (1985) ‘Are taxes on lotteries too high?’ Journal of Policy Analysis and Management, 4: 269–71 Viren, M (2008) ‘The economics of scale and scope in the lottery industry’ Chapter in this volume Viscusi, W K (1994) ‘Cigarette Taxation and the Social Consequences of Smoking’, NBER Working Paper No W4891 Viton, P (1981) ‘A translog cost function for urban bus transit’ Journal of Industrial Economics, 29: 287–304 References 219 Volberg, R A (1996) ‘Prevalence studies of problem gambling in the United States’ Journal of Gambling Studies, 12: 111–28 Volberg, R A (2001) When the chips are down: Problem gambling in America New York, NY: The Century Foundation Von Neuman, J and Morgernstern, O (1944) Theory of Games and Economic Behaviour New York: Princeton University Press Walker, I (1998) ‘The Economic Analysis of Lotteries’ Economic Policy, 13(27) (Oct., 1998), 357–401 Walker, D M (2003) ‘Methodological Issues in the Social Cost of Gambling Studies’ Journal of Gambling Studies, 19(2): 149–84 Walker, D (2007) The Economics of Casino Gambling New York: Springer Walker, D M and Barnett, A H (1999) ‘The Social Costs of Gambling: An Economic Perspective’ Journal of Gambling Studies, 15(3): 181–212 Walker, D M and Jackson, J D (1998) ‘New Goods and Economic Growth: Evidence from Legalised Gambling’ Review of Regional Studies, 28: 47–69 Walker, D and Jackson, J D (2008) ‘Do U.S gambling industries cannibalize each other?’ Public Finance Review, forthcoming Walker, I and Young, J (2001) ‘An economist’s guide to lottery design’ Economic Journal, 111: F700–22 Walker, M B (1992) The Psychology of Gambling New York, NY: Permagon Wang, T C., Hung, K T and Jy, T J (2006) ‘Evaluating Game Industry Operational Efficiency with DEA Method’ Unpublished, I Shou University Wayne, H., Smith, G and Jacobs, D (1996) ‘Adolescent gambling and problem gambling in Alberta’ Edmonton, Alberta, Canada, Alberta Alcohol and Drug Abuse Commission Waters, T M and Sloan, F A (1995) ‘Why Do People Drink? Tests of the Rational Addiction Model’ Applied Economics, 72: 727–36 Wilkinson, M (1994) ‘Paying for public spending: is there a role for earmarked taxes?’, Fiscal Studies, 15(4): 119–35 Willner, J (2003) ‘Privatization: a skeptical analysis’ Chapter in Parker and Saal (2003) Willner, J (2006) ‘Privatization and public ownership in Finland’ Chapter in Kötherburger et al, 2006 Wood, R T A and Griffiths, M D (1998) ‘The acquisition, development and maintenance of lottery and scratchcard gambling in adolescence’ Journal of Adolescence, 21: 265–73 Wood, R T A (2004) ‘Adolescent lottery and scratchcard players: Do their attitudes influence their gambling behaviour?’ Journal of Adolescence, 27: 467–75 Wood, R T A and Griffiths, M D (2007) ‘Online guidance, advice, and support for problem gamblers and concerned relatives and friends: An evaluation of the Gam Aid pilot service’ British Journal of Guidance and Counselling, in press Wood, R T A., Griffiths, M D and Parke, J (2007) ‘The acquisition, development, and maintenance of online poker playing in a student sample’ CyberPsychology and Behaviour, 10: 354–61 World Bank (1996) ‘Bureaucrats as managers Bureaucrats in Business: The Economics and Politics of Government Ownership’ World Bank Policy Research Reports Oxford and New York: Oxford U.P 220 References Worthington, A (2001) ‘Implicit Finance in Gambling Expenditures: Australian Evidence on Socioeconomic and Demographic Tax Incidence’ Public Finance Review, 29: 326–42 Yeoman, T and Griffiths, M D (1996) ‘Adolescent machine gambling and crime’ Journal of Adolescence, 19: 183–8 .. .Gaming in the New Market Environment This page intentionally left blank Gaming in the New Market Environment Edited by Matti Viren Selection and... regulations of the country of origin A catalogue record for this book is available from the British Library Library of Congress Cataloging -in- Publication Data Gaming in the new market environment. .. reexamination’ Southern Economic Journal, 16(4): 1167–81 Swiss Institute (2006) Study of gambling services in the internal market of the European Union: Study carried out by the Swiss Institute