Gamble all your riches away!

Gamble all your riches away!

One negative externality is the result of the vicious cycle of gambling. With the smell of the Integrated Resorts (IR) getting stronger, we can place our scenario in that setting.

An individual enters the casino with an entrance fee of $50. As he gambles, the money spent would be costs to him as well. The entrance fee and all the money he pitches in to gamble would be his private cost.

When his gambling gets out of hand, the debts he owes will be additional private costs. This would affect his family who did not participating in any gambling activities, resulting in an external cost for them. They did not pursue the gambling activity, but the family’s finance would be in hot soup.

It would affect their purchasing power, the ability to pay for utilities, their children’s education expenses and be a burden upon the family. The external cost that falls upon them would be having no utilities at home, inability to maintain their children’s education, etc. Although the debt would have to be paid by the gambler financially, the negative side effects add on as external costs for his family.

In summary,

Private marginal cost (private MC):

For the gambler, the entrance fee ($50), including the money and risks that he will take like debts and bankruptcy.

External cost (XC):

His family who experience financial problems, the possibility of becoming bankrupt, side effects of inability to pay fees and bills (education, utilities, phone bills). The society may also be affected should he break the law by stealing or getting into trouble with illegal debtors.

Social marginal cost (Private MC + XC):

The cost to the gambler (financially, job loss), and his family who is affected by his debts. Should there many people getting into debts, bank who have loaned money to them will also be affected as these individual are unable to return the money. This is alike the situation where banks are draining out (or becoming bankrupt) due to loans for companies going bust. These situations that pile up become factors that make the recession more severe.

Done by Glory

Labels: externality

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