Each voluntary transaction involves consumer and producer surplus (CS and PS) as described in the appendix. There may be no greater benefit from legalized casino gambling than the enjoyment consumers receive from the activity. After all, consumers vote on their favorite goods and services with their spending. The consumer benefits from gambling are likely to be much greater than tax revenue or employment growth benefits from casinos.
Several authors have acknowledged this (Eadington 1996; APC 1999; Walker and Barnett 1999; Collins 2003) but most researchers discount or ignore it (Grinols and Mustard 2001; Grinols 2004). Yet, consumer benefits are critical to understanding how the availability of gambling can benefit society. There are at least two potential sources of consumer benefits from casino gambling. Normally, consumers benefit when increased competition in markets leads to lower prices. This is one source of consumer surplus, illustrated in two examples.
First, sometimes casinos advertise particular games and offer better odds than competing casinos. If the effective price of playing the casino games falls, then CS rises. Second, casinos are often bundled with other products like hotels and restaurants.
To the extent casino competition increases competition in the local restaurant and hotel markets, whether through price decreases or quality increases, the casinos provide more benefits to consumers in the form of CS.
These benefits have been ignored in most cost-benefit of gambling studies.11 There have been some recent empirical studies on the issue. For example, in studying the U.K. horse racing industry, Johnson, O’Brien, and Shin (1999) test for a utility component to gambling. When betting on a horse, a person has the choice of paying a 10% tax on the wager or on the return (if his horse wins).
The authors show that the first choice is always best from 10 The domestic benefits of this transaction may be higher because there are likely lower transport costs and because both parties to the transaction are domestic.