Casinos, Crime and Community Costs

Abstract

Casino gaming - providing negative expected return with positive variance - has puzzled economists with respect to a number of issues, including the extent to which casinos are tied to externalities. In the case of tobacco, the link between use and health-related externalities has led to state lawsuits to recover social costs. This paper studies the connection between casinos and crime using county-level data for every US county between 1977 and 1996, spanning the introduction of casinos to states other than Nevada. We find that casinos increased crime after a lag. The data indicate that 8% of crime observed in casino counties in 1996 was attributable to casinos. The average annual cost of increased crime due to casinos was $65 per adult per year. Furthermore, by studying the crime rates in counties that border casinos host counties we show that casinos create crime, not merely move it from one area to another. If anything, the neighbor data indicate that casino crime spills over into the border counties rather than is moved from them. Last, we explain why other studies have sometimes failed to identify a link between casinos and increased crime rates.

Keywords: Casinos, Crime, Externalities, Social Cost, Pigouvian Taxes

JEL Classification: K0, K2, H2