seigs, gpis, and bcas: playing to different stakeholders dennis coates and scott farrow department...
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SEIGs, GPIs, and BCAs:
Playing to Different Stakeholders
Dennis Coates and Scott FarrowDepartment of Economics
UMBC
www.umbc.edu
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Outline
• SEIG• Regional Issues• BCA Issues• Conclusion
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SEIG is Problematic
• Criticisms not new – Walker (2008)• Impact themes overlap
– Double counting– Dubious categorization of costs and benefits
• Impact theme relative importance unclear– Politically determined– Not transparent
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Examples
• Personal entertainment– Health and Well-Being – Economic and Financial – Recreation and Tourism
• Contribution to economic growth– Economic and Financial: Contribution to GDP– Economic and Financial: Changes in investment, etc– Employment and Education: Direct and indirect job
creation– Employment and Education: Annual and hourly wages
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SEIG is Problematic 2
• Who are the stakeholders/decision-makers?– General Public– Gambling “Interests”– Policy makers and politicians
• Unstructured information may be better than none at all– Unbiased/disinterested research– Value judgments left to stakeholders
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SEIG is ProblematicSummary
• Flexibility or All things to all people• Adding Lemons and Cherries?• Conflating Positive with Normative
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Focus on two topics:
• Regional analysis– Unit of Analysis– Spillovers– Economic Development– Interjurisdictional competition
• BCA– Impacts or markets – Surplus or risk loving uncertainty– Problem or pathological gamblers– Equity
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Issues in Regional Analysis
• Unit of Analysis• Interjurisdictional Competition• Spillovers• Economic Development
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Unit of Analysis
• Anielski and Bratten SEIG– Four possibilities
• Individual, Household• Community – neighborhood, town or city; clubs or
interest groups; may be geographic but need not be• Regions – “larger geographic areas than communities”• Province
– Two Unanswered Questions• What is the political jurisdiction for the analysis?• Given the political jurisdiction, how wide-spread is access
to gambling?
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Spillovers/ExternalitiesWhat is the jurisdiction of the analysis?
• Vaillancourt and Roy identify geographical dimension as one of two significant methodological issues – rationale for Canada as unit of analysis
• Smaller geographic area, the better for extracting benefits from those other jurisdictions/populations
• Smaller geographic area, the more likely to export costs onto other jurisdictions/populations
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Spillovers
• Fiscal Federalism– Multiple jurisdictions– Boundaries set so costs and benefits are captured
• Costs– Gambling– Travel, etc
• Benefits– Gambling– Other
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Economic Development
• Job creation– Gambling– Induced
• Income growth– Gambling– Induced
• Tax revenues• Neighborhood revitalization?
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Interjurisdictional Competition
• Gambler mobility– Slot machines in MD– More venues in BC , AU
• On the border– Attract gamblers from neighbors– Retain home grown gamblers– Spillovers (MA and CT)
• Race to the Bottom
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Selected Issues in GPIG & BCAG
1. GPIG
2. BCAG
– Logic models and Surplus
– Uncertainty
– Problem or pathological gamblers
– Equity
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GPIG
• Within SEIG: Several valuation methods mentioned, including GPIG and BCA.
• GPIG: suggestion to use modified National Income and product accounts (e.g. GDP)– History of concern in GDP for adjustments
(household labor, environment (net dep)…– GDP: C+I+G+net exports or income (flow, not
stock/balance sheet)
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GPIG: doesn’t resolve issues• GPIG comments (e.g. Anielski, GPINovaScota)
– Not implementing national income accounting : only identify candidates as subset of SEIG
– Double counting: GDP of gambling + personal expenditures– Should personal expenditures be wagers net of payouts as suggested? Aren’t
expenditures the wagers and the payouts income?– Inequality adjustment: more later, how to investigate value judgment?– Usual co-morbidity issues– Property value (NIPA is a flow net of depreciation, property would need
separate balance sheet)– Cost of bankruptcy, lost productivity: these are mediated in part through
markets; expected to be built into wages and risk based interest rates,– Addiction: change in surplus mentioned but actually change in expenditure
(no surplus measures in GDP), more later
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Logic Model: SEIG, GPIG, and BCARegion or Province is central actor? What is causing what?
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Gambling marketConsumers: CSProducers: PS(WTP: Risk Loving)Government
Revenues and expenditures
Input Markets
Labor MarketGambler’s incomeRegional employment
Financial MarketsBorrowing/lending
External EffectsHouseholdCrimeCommunity
Partial Equilibrium (can extend to general equilibrium) Standing: Whose impacts count…e.g. Provincial
BCA: Links among markets, Gov’t and Externalities
Legal conditions and multiple market interactions
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Is Gambling Consumer Well Analyzed?
• Fundamental issue of consumer behavior Gamblers must be risk loving in this activity since the payout is less than “fair”
• Complex links between surplus and Willingness to Pay with uncertainty (latter preferred with uncertainty): – Broader economic literature not resolved (expected and non-
expected utility) people such as two nobel prize winners (Freidman, Markovitz)
• Current candidates: • Consumer “expenditures”, but that is usually that is what is
deducted from total benefits to get consumer surplus• Standard surplus (Grinols…at margin no effect)--• Distance surplus, but no link to change in price (Grinols)• What happened to valuation under uncertainty?
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Expenditures and Surplus contrastedFundamentally different measures
Price
P
Demand
Q Quantity
Expenditures (P*Q)
Consumer surplus (Total WTP less expenditures)
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Risk Loving, and Paying to Gamble at point of indifference
(Contrasts: Insurance--paying not to gamble)
Gamblers: Z= ex-ante WTP for access to gamble (including travel and house take); if cost is less, a “surplus” but not the standard surplus.
Utility
Z E(U(G))=U(I)
IncomeIE(I)
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WTP to gamble and change in location(related to “distance surplus”)
• ZG Gambler: WTP ex-ante for gamble can include– Fixed fee (travel)– House/state take– “surplus” if doesn’t have to pay the full amount– If gambling location gets closer, same WTP but more may go for
gambling and/or surplus, gamble more
• ZNG Non-gambler: may have WTP in a smaller amount that is not sufficient to travel so no observed “gamble”; as locations get closer, then ZNG may be sufficient to gamble; new entry of gambling.
• Price of gamble is extracted from WTP• If offered better gamble (e.g. “looser slots”) at least willing
to pay earlier amount and may get added utility surplus.
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Problem or Pathological Gamblers
• Consumer sovereignty or not?– Standard model: people responsible and
understand own actions– Non-standard model (some aspects of Behavioral
economics)• Lack of control (some with WTP to be “normal”), then a
modest surplus loss ( Australian report or Vining and Weimer (JBCA, 2011) based on gambling to P&P gamblers that returns less than expected.
• Other behavioral: could be issues in lack of understanding of probabilities
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Surplus Loss from Addiction• (Vining/Weimer/Thomas) smoking, ~25% loss in Total Surplus
– Preliminary oddity: if only use distance surplus as consumer benefit, then addiction adjustment appears small.
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Equity and BCA
Increasing attention with new Administration in U.S. and regulatory analysis
• Standard approach in textbooks is to consider distributional weighting using marginal utility of income for different income classes, but lack of agreement on weights– Sensitivity: default in BCA is equal MU(income) which is an
Atkinson weight of 0.– As an assumption, easily varied, perhaps to find cross-over point– Some guidance; UK Greenbook for regulatory analysis specifies
Atkinson weight of 1; US Census reports .25, .5, .75– Example from Analysis of VLTs in Maryland (Farrow and Shinogle)
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Distributional weights based on values of inequality aversion, e, used by the U.S. Census Bureau and the UK Treasury
Population Quintile, Median, %
Mean US HH Income by Quintile: 2007
Default: e=0 e=.25 e=.5 e=.75 e=1
0-20 $11,551 1 1.4 2.1 3.0 4.320-40 $29,442 1 1.1 1.3 1.5 1.7Median $50,233 1 1.0 1.0 1.0 1.040-60 $49,968 1 1.0 1.0 1.0 1.060-80 $79,111 1 0.9 0.8 0.7 0.680-100 $167,971 1 0.7 0.5 0.4 0.3 D
Data source: US Census, 2008b; author’s calculations
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Short example: VLT’s in MarylandBase case: positive (but uncertain) Net Benefits
Video Lottery Terminals Basic Model I: direct effects only
Basic Model I Mil 2008 $ Mil 2008 $
Benefits MIPAR
Delta CS: Consumer distance $25 Delta CS: Consumer distance $25
Delta Gov't Revenue $913 Delta Gross Gov't Revenue $913Delta G: Annaul fee for Prob. Gamb $6 $6
Delta PS: MD Profits $36 Delta PS: MD Profits $36
New sales tax $2.5
Unemployment effects $0
Welfare benefits $980 Modified Benefits $982
Costs
Delta Gov Rev (2% Admin) $27 Delta Gov Rev (2% Admin) $27
Delta Gov Rev: other cost $48 Delta Gov Rev: other cost $48
External costs $428 External costs $428
Loss in lottery sales 57
Loss in other taxes 34
Change other CS or PS 0
Welfare costs $503 Modified Costs $594
Annual Net Benefits $477 Modified Net Ben $389
Specific Secondary effects
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Distributional Weights: Can change sign
e=.5 e=.25
~4:1 2:1 weight
w/Distributional impact:gambler $43 $31
$913 $913
$6 $6
$36 $36
$2 $2
$0 $0
$1,000 $989
$27 $27
$48 $48
$428 $428
$57 $57
$34 $34
w/Distributional impact:gambler 971 345
$1,565 $938
-$565 $50
Extended model with Distributional effects
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Summary What can be learned from gambling analyses
• SEIGs and GPIGs: potential impacts of interest to various stakeholders
• Regional Issues: spillovers, race to the bottom• BCA issues: framework exists but lacks central
WTP measure based on gambling; can include addiction and equity.
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Extra slides
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Simulation results(using @Risk with Excel)
5.0% 90.0% 5.0%
75 521
-200-1000100200300400500600700
0.0000
0.0005
0.0010
0.0015
0.0020
0.0025
0.0030
0.0035
Modified Net Ben / Extended model with Parameter Uncertainty
Modified Net Ben / Extended model with Parameter Uncertainty
Minimum -153.0188Maximum 688.3253Mean 308.9715Std Dev 135.0578Values 10000
@RISK for ExcelPalisade Corporation
0.76
-0.60
0.10
0.10
0.09
-0.8-0.6-0.4-0.20.00.20.40.60.8
Coefficient Value
75 to 20 miles-Grinols
proportion of unemploy hired / Number of term
Profit percent / Number of term
External costs / Extended model with Parameter Uncertainty
Delta Gross Gov't Revenue / Extended model with Parameter Uncertainty
Modified Net Ben / Extended model with Parameter UncertaintyCorrelation Coefficients (Spearman Rank)
@RISK for ExcelPalisade Corporation