Assessing the impact of electronic gaming machines: A conceptual critique of the Productivity Commission's methodology

Abstract

In its Final Report Australia's Gambling Industries, the Productivity Commission (1999) developed a methodology for quantifying the social benefits and costs associated with legal gambling. In essence, this novel methodology departed from previous evaluation approaches by (a) assessing both the benefits and costs of gambling and (b) using the concept of consumer surplus rather than investment, employment and other directly observable consequences of gambling to gauge its economic effects. The Productivity Commission methodology has subsequently become extremely influential in the regulation of gaming in Australia, particularly in New South Wales, where it is often relied upon to support a positive economic impact on the local community in Class 2 Social Impact Assessment statements under the Gaming Machines Act 2001 on the desirability or otherwise of the introduction of additional Electronic Gaming Machines into an area. However, despite the broad acceptance of this methodology, it nevertheless contains several fatal conceptual flaws which have hitherto been ignored. This paper seeks to remedy this neglect by providing a theoretical critique of the Productivity Commission’s approach.