Friday, November 25, 2005
Government and Gaming Regulations
I’m spending Thanksgiving week in Las Vegas and wondered why government regulates gaming. I’m sure there is some historical explanation having something to do with reducing organized crime’s influence on gaming, but from the framework of economic efficiency is such government regulation appropriate?
The good in the gaming market is the gamble and the price is the bet of that gamble. For example, when I bet $25 at the blackjack table that is the price I pay to play the game, or gamble, where playing the game is the good I am consuming.
From the framework of economic efficiency there may be a role for government when the market fails to provide a public good, or a monopoly or an externality is present. Does any of this apply the gaming industry?
Let’s start with monopoly. No monopoly exists in the gaming industry. There are plenty of casinos in downtown Vegas and even more on the Vegas Strip. There are casinos all over the state of Nevada as a matter of fact, so monopoly doesn't apply.
The model of a public good doesn’t apply either since gambling is both excludable and rival. Gambling is rival as it requires money. Gambling is also excludable. For example, only six people can play at a blackjack table. And only one person at time can play a slot machine.
I don’t think there are externalities in gambling either. Certainly there are no positive externalities. I just can’t see how someone besides me or the casino would benefit from my gambling. I don’t think there are any negative externalities either. Although there are individuals who might claim my gambling bothers them on some moral ground, I’m not concerned with their preferences. I am concerned only with the preferences of the individuals involved in the transaction, not those outside of it.
Monopoly? No. Pubic good? No. Externalities? No. This suggests government should refrain from intervening in the gaming market.
However, not all economists would agree with this. As Prof. Eubanks has mentioned in class some economists hold that asymmetric information is a source of market failure. If you find this to be a source of market failure then there probably is a role for government in the gaming market. Gamblers don’t know if the casino is rigging slot machines to never pay out, or if card dealers are trained to deal cards so the house always wins. Government is needed to ensure gamblers have the same information that casinos have.
What do you think? Should we consider asymmetric information as a source of market failure?
The good in the gaming market is the gamble and the price is the bet of that gamble. For example, when I bet $25 at the blackjack table that is the price I pay to play the game, or gamble, where playing the game is the good I am consuming.
From the framework of economic efficiency there may be a role for government when the market fails to provide a public good, or a monopoly or an externality is present. Does any of this apply the gaming industry?
Let’s start with monopoly. No monopoly exists in the gaming industry. There are plenty of casinos in downtown Vegas and even more on the Vegas Strip. There are casinos all over the state of Nevada as a matter of fact, so monopoly doesn't apply.
The model of a public good doesn’t apply either since gambling is both excludable and rival. Gambling is rival as it requires money. Gambling is also excludable. For example, only six people can play at a blackjack table. And only one person at time can play a slot machine.
I don’t think there are externalities in gambling either. Certainly there are no positive externalities. I just can’t see how someone besides me or the casino would benefit from my gambling. I don’t think there are any negative externalities either. Although there are individuals who might claim my gambling bothers them on some moral ground, I’m not concerned with their preferences. I am concerned only with the preferences of the individuals involved in the transaction, not those outside of it.
Monopoly? No. Pubic good? No. Externalities? No. This suggests government should refrain from intervening in the gaming market.
However, not all economists would agree with this. As Prof. Eubanks has mentioned in class some economists hold that asymmetric information is a source of market failure. If you find this to be a source of market failure then there probably is a role for government in the gaming market. Gamblers don’t know if the casino is rigging slot machines to never pay out, or if card dealers are trained to deal cards so the house always wins. Government is needed to ensure gamblers have the same information that casinos have.
What do you think? Should we consider asymmetric information as a source of market failure?
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I think you dismiss externalities too swiftly. You say, "Although there are individuals who might claim my gambling bothers them on some moral ground, I’m not concerned with their preferences." If these people were harmed they are now on a lower indifference curve. And how do we derive that curve?
Actually it is because we take preferences as given that we economists have to try make silly judgments (under the normative framework of economic efficiency) like trying to weigh who would be harmed more. Under efficiency economist chase the elusive condition of Pareto allocation. Maybe economic efficiency isn't all that it's cracked up to be, or then again maybe it is.
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