Wednesday, April 06, 2005

New Study: Impact of Casinos on Personal Bankruptcy

Ernie Goss and I have recently completed a study that provides an extensive analysis of the impact of casinos on bankruptcy rates. This study, entitled “The Impact of Casino Gambling On Individual Bankruptcy Rates from 1990 to 2002”, evaluates personal bankruptcy data on a county-level basis over the period from 1990-2002 for both casino and non-casino counties. Adjustments for factors such as population, employment, per capital income, and race are designed to isolate the impact of adding a casino on the personal bankruptcy characteristics of the county population.

The study is the first to show varying bankruptcy effects over the lifecycle of the casino. After an initial increase in personal bankruptcy rates, rates decline and level out for an additional two or three years, followed by progressively increasing rates. Compared with a non-casino county, the casino county is expected to have higher overall bankruptcy filings than the noncasino county after the ninth year of operations, with progressively increasing rates thereafter.

The study also raises possible explanations for these lifecycle effects. Casinos may have positive economic effects manifested in initial years, which dampen the effects from problem gambling behavior. However, these effects may moderate as casino markets mature. The combination of the manifestation of problem gambling behavior, coupled with declining inflows from nonresidents as casino markets become more densely occupied, has the potential to increase total bankruptcy experiences some years after the casino has opened. This suggests that bankruptcy effects from many of the casinos opened in recent years are yet to be experienced in local communities.

The study’s methodology is also likely to understate the magnitude of these bankruptcy effects, as it focuses only on bankruptcies in counties in which casinos are located. Given that casinos are often located near untapped markets across state or county borders, problem gambling impacts in these counties are effectively assigned to noncasino counties under this methodology. Nevertheless, the analysis reveals a statistically significant connection between casinos and increasing bankruptcy rates.

Ernie will present the findings at the Southern Regional Science Meetings in Washington, D.C. April 9th. A copy of the study is available in PDF format at the following website: . (Follow the links under "research and news" and then "research". Of course, you are welcome to provide feedback here if you wish.

Best regards.

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