Together with estimates of the costs associated with treating problem gamblers and dealing with the disruption they cause, estimates of the proportion of revenues derived from problem gamblers represent one of the most important factors in the calculus of rational public policy in this controversial field. In this paper, we first present a review of the literature on the social costs of problem gambling, including several studies that have examined the contribution of problem gamblers to gambling industry revenues. We then present an approach that we have developed and provide illustrations from two different United States jurisdictions. We then look at the relationship between reported and actual expenditures to assess the reliability of the approach we have developed.Our review of the existing literature on the social costs of problem gambling discloses conceptual and methodological flaws that are sufficiently serious as to call the resulting estimates into question. Tentatively, we conclude that the proportion of gambling revenues derived from problem gamblers can range widely and depends on variables that include the menu of gambling games available in a market area, the prize structures of these games, and the length of time the games have been operating. The results of this paper indicate that not all forms of commercial gambling are alike in the extent of the negative externalities associated with their operation, a widespread assumption that seriously impedes the formulation of rational public policy in this field.

The continued expansion of the casino industry has caused increasing concern regarding the cannibalization of other industries, and in particular, state lotteries. For example, Maryland Lottery sales flattened shortly after casinos began opening in the state. Although previous papers have found that casinos and lotteries have a negative relationship with each other, no previous research has analyzed the impact of casino proximity on lottery sales or has examined the relationship between casinos and different types of lottery games. In this paper, we examine ZIP code‐level monthly lottery sales data from Maryland between July 2009 and February 2014, in order to test the impact of casino proximity on lottery sales, by type of game. Our findings indicate that aggregate lottery sales decline more in closer proximity to casinos, but that casinos affect different lottery products differently. We discuss the consumer behavior and public finance implications of the findings. (JEL H27, H4, L83)