The Menace of Competition and Gambling Deregulation
Atkinson, Glen, Nichols, Mark, Oleson, Ted, Journal of Economic Issues
Why regulate gambling? The industry does not have the characteristics of a natural monopoly as in the case of public utilities. Casinos have neither the fiduciary responsibilities of banks or insurance companies nor the public safety responsibilities faced by such regulated enterprises as airlines. Public regulation of private markets shapes industry structure and influences the behavior of firms within the industry. What behavior needs to be altered in the case of gambling? This question needs to be asked before we design and implement regulatory structures and processes. All too often, we enact economic reform without asking that question [Schmid 1987, xiii].
Recently, as gambling has spread to different locations, regulations have been adopted and later modified. We describe how social concerns about the spread of gaming led to various attempts to regulate the industry. We then describe how subsequent deregulation progressed, allowing increased gambling activity. We use as our theoretical framework John R. Commons's concept of the "Menace of Competition" . We assert that this concept allows us to understand the development of gambling regulation and the evolution of the industry.
We note at the outset that this paper does not attempt to make a judgment on whether the deregulation that is taking place in jurisdictions with casino gambling is good or bad. The moral dimension of the regulation of gaming is a legitimate concern, but it is not the issue examined in this article. Deregulation, where it has taken place, has been responsible for revitalizing the industry and for increasing total tax revenue. It also is plausible, however, that the expansion of gambling has increased social costs. This paper does not attempt to measure these gains and costs or make a prediction as to whether one exceeds the other. Our purpose is to understand the evolution of "gambling regulations" and their effects on the industry. We are suggesting that liberalization of regulations has changed the industry, and those changes have feedback effects that lead to further regulatory liberalization.
Rising Concerns about Gambling
Legalized gambling has spread from coast to coast within the last 35 years. There are very few states without some form of legal gambling. New Hampshire started its lottery in 1963, and now legal lotteries are operated in 37 states. Prior to the legalization of casinos in Atlantic City in 1978, casinos were limited to Nevada, but now they are in more than two dozen states. Other forms of gambling, such as racetracks and cardrooms, existed in many states, but their clientele was limited and did not generate the social concern that casinos do.
The spread of legalized gambling has simultaneously brought more public acceptance of gambling and sufficient public concern to cause the creation of the National Gambling Impact Study Commission [Public Law 104-169, 18 U.S.C. 1955]. The Commission had a $5 million budget and a two-year period in which to investigate "the relationships between gambling and addiction, economic development, government funding and corruption" [Lindelof 1998, Al]. While the conclusions and recommendations of the Commission are too numerous to elaborate on here, the concern over gambling's spread is reflected in the statement made by the Commission that it "believe[s] it is time to consider a pause in the expansion of gambling" [National Gambling Impact Study Commission 1999, chap. 1, 7].
Gambling has spread as a means to create jobs and to generate government revenue. It may be no mere coincidence that the most rapid spread of gambling occurred during the period Wallace Peterson called the silent depression and about time of the tax rebellion initiated by California's Proposition 13 [Peterson 1994]. Campaigns to legalize or relax gaming regulations usually appeal to the prospects of job creation and funding for social goods such as education. …