2001•Managerial and Decision EconomicsRequires access

Business profitability versus social profitability: evaluating industries with externalities, the case of casinos

Earl L. Grinols, David B. Mustard

Abstract

Abstract Casino gambling is a social issue, because in addition to the direct benefits to those who own and use casinos, positive and negative externalities are reaped and borne by those who do not gamble. To correctly assess the total economic impact of casinos, one must distinguish between business profitability and social profitability. This paper provides the most comprehensive framework for addressing the theoretical cost–benefit issues of casinos by grounding cost–benefit analysis on household utility. It also discusses the current state of knowledge about the estimates of both the positive and negative externalities generated by casinos. Lastly, it corrects many prevalent errors in the debate over the economics of casino gambling. Copyright © 2001 John Wiley & Sons, Ltd.

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Key concepts: Profitability index, Externality, Social cost, Economics, Social benefits, Microeconomics, Industrial organization, Business