What Happens When We Ignore Science Risks to Public Policy and Public Health An Examination of CostB

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What Happens When We Ignore Science? Risks to
Public Policy and Public HealthAn Examination
of Cost-Benefit Studies on Casino Gambling in
the U.S.

• 7th Annual NCRG Conference on Gambling and
  AddictionNovember 12-14, 2006. Las Vegas, NV.
• Douglas M. WalkerAssociate Professor of
  EconomicsGeorgia College, Milledgeville, GA

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Cost-benefit studies

• Studies are written by academic researchers and
  consultants, and accounting/consulting firms.
• Studies are funded by government agencies, the
  casino industry, and other advocacy groups.
• Cost-benefit studies - especially related to
  casino gambling - are cited by the media and used
  by lobbyists and policymakers.

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Examples of major studies

• U.S. House of Representatives (1994/1995)
• National Gambling Impact Study Commission (NGISC
  1999)
• Australian Productivity Commission (APC 1999)
• National Opinion Research Center (NORC 1999)
• National Research Councils Pathological
  Gambling A Critical Review (1999)

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Economic benefits of casinos

• The benefits of legalized casino gambling may
  include
• casino tax revenues (avoidable by consumers)
• potential for economic growth
• labor market effects (higher employment and
  wages)
• benefits for consumers who like gambling
• This is probably the most important and neglected
  benefit.
• There have been relatively few academic studies
  of the benefits of gambling.

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Social costs of gambling

• The social/economic costs associated with casino
  gambling are controversial
• in terms of definition
• and measurement
• Most of the costs are caused by pathological
  gamblers.
• Three perspectives on cost were represented at
  Whistler (2000) and Banff (2006)
• Cost of Illness (COI)
• Economic
• Public Health

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Perspectives on cost

• Cost-of-illness (COI)
• Single (2003) and Single et al. (2003)
• adapted for gambling from the alcohol/substance
  abuse literature
• perhaps the best-developed methodology on costs
• but uses a problematic definition of cost
  (Markandya and Pearce 1989)

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Perspectives on cost (cont.)

• Economic
• Collins and Lapsley (2003)
• like Single, they use the Markandya and Pearce
  definition of social cost
• Eadington (2003)
• Walker and Barnett (1999)
• supplemented by Walker (2003, 2007)
• These three economic discussions are similar, but
  there are some differences.

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Perspectives on cost (cont.)

• Public health
• Korn and Shaffer (1999) and Korn, Gibbins, and
  Azmier (2003)
• the most general of the three perspectives
• Monetary measurement appears not to be a focus.

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Early cost studies

• Early study examples include
• Maryland Task Force (1990)
• Casinos in Florida (1995)
• Goodman (1994a), Legalized gambling as a strategy
  for economic development
• Goodman (1995b), The luck business, is similar
• Grinols and Omorov (1996), Grinols (1994a, 1995a)
• Kindt (1994, 1995)
• Thompson, Gazel, and Rickman (1996, 1997, 1999)
• Many are not peer-reviewed, or use arbitrary
  assumptions, or have been criticized in the
  literature.

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Recent cost studies

• Recent cost studies include
• Thompson and Quinn (2000)
• Study of South Carolina video poker machines
• Managerial and Decision Economics (2001)
• Special issue edited by Grinols and Mustard
• Included papers by Gazel, Rickman, and Thompson
  (2001), Grinols and Mustard (2001), and Kindt
  (2001)
• Comments on Kindts paper were published in MDE
  in 2004 by Eadington Gerstein et al. Levy and
  Walker.

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Recent cost studies

• Recent studies (cont)
• Thompson and Schwer (2003/2005)
• Study of Las Vegas that got publicity
• Uses the methodology by Thompson et al. (1996)
• Hall Aitken (2006)
• Study of U.K.
• PolicyAnalytics (2006)
• Study of Indiana, with a focus on crime

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Why focus on costs?

• Costs are typically the focus by media,
  politicians, and researchers.
• This may be a result of the existing illegal
  status of casinos
• Are the benefits of legalization/expansion worth
  the costs?
• Estimates of expected tax revenues, employment
  increases, and changes in average wages can be
  easily produced.
• The social/economic costs are more elusive, both
  in defining them and in measuring them.
• Costs are closely related to prevalence of
  pathological gambling.
• For simplicity Ill ignore different severities
  of problem gambling as well as controversies over
  diagnosis and prevalence estimation.

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Calculating social costs

• Most of cost studies use this formula
• estimated annual cost per pathological
  gambler X prevalence estimate () X
  population estimate
• estimated annual social cost of gambling

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Variation in cost estimates

• Although no one who estimates monetary values of
  social costs defines the term, estimates have
  ranged from
• 9,000 to over 50,000 per pathological gambler
  per year.
• These estimates often include wealth transfers
  and costs that are internalized by the actor.
• What is the motivation to produce monetary
  estimates?
• Politicians want number on which to base
  decisions.

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Grinols (2004)

• Grinols book Gambling in America has the
  potential to be very influential.
• His book would appear to be comprehensive and
  unbiased to the reader unfamiliar with gambling
  research.
• Like Kindt, Grinols ignores work with which he
  disagrees.
• See Eadington (2004) for a detailed discussion.
• For a general discussion, see my book review in
  Southern Economic Journal, Jan. 2007.

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Grinols (2004)

• Grinols estimates the social costs of casinos in
  the U.S. (p. 171)
• Estimates the annual cost to society of one
  pathological gambler at 10,330.
• Cost per problem gambler is estimated at 2,945.
• Grinols argues this is an underestimate of the
  true cost.
• On a per adult basis, the average cost is
  estimated to be 219. (p. 175)

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Grinols (2004)

• Grinols explains that his cost estimates were
  derived by averaging over the available
  original studies for each category of social
  cost, adjusting to 2003 dollars, and summing over
  cost types (p. 176).
• The studies used by Grinols to derive his cost
  estimates include
• 9 studies, none peer-reviewed.

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Studies used by Grinols

• Politzer et al. (1981)
• later published in Journal of Gambling Behavior
  (1985)
• introduced the term, abused dollars
• Thompson et al. (1996)
• later published in Gaming Law Review (1997)
• Thompson and Quinn (1999/2000)
• unpublished
• Thompson and Schwer (2003)
• later published in Journal of Public Budgeting,
  Accounting and Financial Management (2005)

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Problems with Grinols Estimate

• Grinols estimate is careless and unreliable as
  policymakers may take it seriously.
• Most of the studies from which it is derived are
  seriously flawed.
• Thompson et al. (1996, 1997), Politzer (1981),
  and elements of Thompson and Schwer (2003) were
  examined by Walker and Barnett (1999)
• Other criticisms of the methodologies of these
  studies have been made by the National Research
  Council (1999) and Federal Reserve Bank of
  Minneapolis (2003).

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Problems with Grinols Estimate

• Grinols ignores the controversy over how to
  define and estimate social costs.
• His presentation gives the impression that
  because the cited research is original it is
  legitimate.
• He does not explain differences in the studies or
  their potential flaws.
• Examples of some of the problems in the studies

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Politzer et al. (1985)

• This concept is too vague to be useful.
• What is an essential purpose?
• Is it defined the same for Bill Gates and Joe
  Sikzpak?
• It could be interpreted to mean that the total
  amount of bets placed (handle) represents abused
  dollars.
• This amount would often be much larger than the
  actual losses by a gambler.
• Any money borrowed to gambler is considered
  abused dollars.
• Use of this concept allows one to arrive at a
  very high social cost estimate, because the
  concept is so vague.

• Politzer et al. (1985, p. 133) define abused
  dollars
• the amount of money obtained legally and/or
  illegally by the pathological gambler which
  otherwise would have been used by the
  pathological gambler, his family, or his victims
  for other essential purposes. These abused
  dollars include earned income put at risk in
  gambling, borrowed, and/or illegally obtained
  dollars spent on basic needs and/or provided to
  the family which otherwise would have been
  covered by that fraction of earned income which
  was used for gambling, and borrowed and/or
  illegally obtained dollars for the partial
  payment of gambling related debts.

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Thompson et al. (1997)

• Estimated social cost per compulsive gambler is
  9,469 (p. 87), but
• they do not define social cost, and simply
  include whatever negative effects they can
  measure with their survey on Gamblers Anonymous
  (GA) members.
• Blaszczynski et al. (2006) indicate that survey
  respondents may have difficulty in estimating
  their losses.
• Using GA members in Las Vegas to estimate general
  cost per pathological is inappropriate.

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Thompson and Quinn (2000)

• Count as costs money that leaves South Carolina
  for the purchase of video poker machines
  (millions of leave the state).
• If this was a legitimate conception of social
  cost, then anytime anyone made any purchase it
  would represent a social cost.
• Cost defined as money spent is not bad - its
  good.
• Consider a transaction at the grocery store.

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Thompson and Schwer (2003)

• They estimate the annual social cost of per
  pathological gambler in Las Vegas at 19,085.
• Accounting for estimated prevalence and
  population, the total annual cost estimate is
  between 301 and 470 million!

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Studies cited by Grinols (2004)

• Among the studies cited by Grinols, there is
• Disagreement about the types of costs to include
• Sometimes costs are excluded because of
  measurement difficulties.
• Disagreements on the estimated values of the
  individual cost categories
• For example

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Adjudication (Criminal and Civil Justice) Costs

• The monetary estimates for these costs among the
  Grinols-cited studies are
• 3,619 (Maryland, Politzer et al. 1981)
• 733 (Wisconsin, Thompson et al. 1996)
• 568 (Conn., Thompson et al. 1998)
• 31 (S. Dakota, 1999)
• 420 (Louisiana, Ryan et al. 1999)
• 266 (S. Carolina, Thompson and Quinn 2000)
• 51 (Nevada, Thompson and Schwer 2003)
• It is difficult to believe that there could be
  such variation in costs across states.
• This is an indication that the definition or
  measurement of costs varies across studies.

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Thompson and Schwer (2003)

• Use a survey of 99 Gamblers Anonymous (GA)
  members in Las Vegas
• Ask demographic data and about
• Volume of gambling activity
• Total lifetime gambling losses
• Sources of money used to gamble
• Gambling debt accrued
• Bankruptcy and other court proceedings to deal
  with creditors
• Theft or other illegal activities committed
• Convictions and jail time served
• Gamblings effects on the job
• Government aid received
• Professional treatment received
• However, the paper does not provide a copy of the
  survey questions.
• Blaszczynski et al. (2006) findings that survey
  respondents may not accurately estimate gambling
  losses.
• Budgets are fungible, so it is difficult if not
  impossible to identify specific sources of
  money used to gamble.

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One cost component of Thompson and Schwer (2003)

• To illustrate the arbitrary nature of social cost
  estimates, in almost all of the studies cited in
  this presentation,
• lets consider the calculation of one component
  of the Thompson and Schwer (2003) cost estimate.
• I choose this study because the authors explain
  in detail their calculation process.

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Thompson and Schwer (2003) estimate for lost
work time cost

• 50 of 89 respondents (56) indicated they had
  missed work because of gambling.
• These reported an average of 17.22 hours missed
  during each month due to gambling.
• The average loss is 9.67 hours/month allocated
  over the 89 respondents.
• This amounts to 116.1 hours per year.
• Calculated (50 x 17.22)/89 x 12
• 116.1 hours is multiplied by 15/hr, the hourly
  rate based on Thompson et al.s (1996) use of an
  average annual pay rate of 23,610.
• This results in an estimated cost of 1,742 for
  lost work time.

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Thompson and Schwer (2003), cont.

• The total estimated cost is 19,085
• They multiply this cost by 43 because Politzer
  et al. (1985) estimated the costs of gamblers not
  in treatment is only 43 as high as those in
  treatment.
• The result is an estimated cost of 8,207 per
  pathological gambler.
• Eliminating transfers and internalized costs
  reduces the 19,085 estimate to 2,049.

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Thompson and Schwer, cont.

• The cost estimate (8,207) is then multiplied by
  the population estimate and pathological
  prevalence rate range.
• Low pathological est. 1.8, high est. 3.5 of
  population
• 162.8 - 316.6 million
• Cost estimate for problem gambler is 4,350
• low prevalence rate est. 2.9, high rate 3.2
• 139.0 153.4 million
• Total cost estimate 301.8 470.0 million

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Summary

• Ive argued that most of the social cost studies
  are methodologically flawed.
• They do not define social cost or what they are
  trying to measure.
• They do not defend (or explain) their measurement
  methodology.
• The result is a wide range of social cost
  estimates, from 9,000-13,000 up to 53,000.
• With such a wide range of estimates, we should
  not base policy on these cost estimates.

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References

• Bibliography of papers cited in this presentation
  is available at
• http//walker-research.gcsu.edu,
• or by request dougwalker1_at_gmail.com

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The Economics of Casino Gambling

• The Economics of Casino Gambling
• Douglas M. Walker
• Georgia College
• Springer, Jan. 2007.
• ISBN 3-540-35102-7.
• For more information, go to
• http//walker-research.gcsu
• Or order it from
• www.springer.com or www.amazon.com