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How gambling spreads from state to state

There is an informative article in the New York Times today on proposals to introduce a limited (but large) number of slot machines, aka "video lottery terminals" to Maryland and Pennsylvania. In Maryland, state officials have been watching potential tax revenues drift into Delaware slot machines for years. In Pennsylvania, the governor's office sees gambling dollars flowing to "New York, New Jersey and West Virginia. Now Maryland may soon have it. It's time for us to recapture some of that revenue."

Here's a thumbnail sketch of the process at work:

1) state governments with a budget squeeze license a form of gambling and take a share of the monopoly rent

2) to overcome political opposition, gambling revenues are earmarked for politically symbolic purposes such as education

3) the process spreads through a contagion effect, where neighboring states incrementally add forms of gambling to mitigate the flow of revenue across the border

This process is centuries old in the U.S. In some periods, opponents of gambling get the upper hand, and prohibition movements succeed in driving out legal forms of gambling. Budget crunches tilt the balance in favor of legalized gambling. Some slides from a talk I gave about this process are here. For a more in depth analysis, see my article "The Political Economy of Gambling Regulation," published in Managerial and Decision Economics, 2001. Both the slides and the article discuss the ebb and flow of legalized gambling in the U.S. since colonial times. The article is available in working paper form at my university web page.