New Study Examines Discrepancies in Cost-Benefit Analyses of Gambling

What is the true cost of problem gambling? Despite numerous cost-benefit analyses, researchers have so far failed to build consensus on the issue, estimating the average costs associated with a problem gambler to range anywhere from $560 to $52,000 per year.  
A new study by Australian researchers D.J. Collins and H.M. Lapsley (The Social Costs and Benefits of Gambling: An Introduction to the Economic Issues. Journal of Gambling Studies, 19 (2), 123-148), summarized in a recent issue of The Wager, analyzes the reasons for these large discrepancies. The study highlights the problems encountered in quantifying the costs and benefits of gambling and gives suggestions for developing reliable estimates and analyses.

First, according to the study, researchers must be careful to include both private costs (impact of an activity undertaken rationally and with full information as to possible negative consequences, where the individual bears the total cost) and social costs (those imposed involuntarily on others in society as a result of the action) when calculating the total economic cost of gambling. The study points out that discrepancies among researchers on how to distinguish between these costs are a major reason for the large variance among existing gambling cost estimates. 

Collins and Lapsley advise researchers to consider a psycho-economic approach when attempting to measure social costs of gambling. They note that responsible, legal gambling carries a very low cost, while irrational, disordered gambling can incur much higher social costs. Social costs are also higher when individuals do not bear complete responsibility for their actions, shifting the burden to society. 

The study finds that attribution of costs can also contribute to differences among gambling cost analyses. According to Collins and Lapsley, researchers must be sure to identify costs that are the direct result of gambling, rather than those associated with gambling but actually caused by something else. They must also distinguish between actual costs and debts or transfers, which sometimes result in no net cost to society as a whole.

Collins and Lapsley advise that researchers must also assess private and social benefits when conducting cost analyses of gambling. They note that, as with costs, benefit analyses vary according to definitions. For example, according to the study, some religions may not consider recreation through gambling to be a benefit. But, the study notes, there is some evidence that individuals can experience health, social and recreational benefits from gambling.

Collins and Lapsley point to employment, tourism and tax revenue as some of the reported social benefits of gaming, but they note researchers must also consider the economic impacts that could occur if gambling ceased to get a true picture of the benefits. Whether gamblers save their money, spend it elsewhere or select a different recreational activity would impact the calculated sum of social benefits.

Collins and Lapsley acknowledge it may be impossible to accurately quantify the full range of costs and benefits in gambling analysis, but note the importance of gathering as much reliable, standardized information as possible in order to make sound public policy decisions related to gambling. 

Finally, they offer a framework of recommendations for subsequent research in the area, including clarifying confusion about underlying theories in cost-benefit analysis; promoting discussion of controversies; identifying and quantifying practical, causal relationships between gambling and social problems; and encouraging the creation of comparable bases of international estimates of the social costs of gambling.

To read this issue, visit The Wager Web site, and click on back issues (Jan. 14, 2004).