On the Public Economics of Casino Gambling

This paper studies casino-style gambling from the public economics point of view in a jurisdiction populated by oligopolistically competitive legal casinos. We consider three different regimes: laissez-faire, entry regulation and tax regulation. The model highlights three important external effects from casino-style gambling: non-casino income creation, social disorder costs, and casino exporting to other jurisdictions. In the generalized case with an endogenously-determined ratio of local to total gamblers, we allow the configuration of casinos to be centralized or jurisdiction-wide dispersed. A complete comparison between equilibrium and command optimum outcomes is provided, and the welfare consequences under the three regimes and two casino configurations are examined.