Public policy and the displacement effects of casinos: A case study of riverboat gambling in Missouri

A critical issue in assessing the economic impact of casinos is whether gambling activity displaces consumer expenditure from conventional retail establishments. We test this hypothesis using industry-level, time series data for eleven counties in Missouri, a state that recently introduced riverboats. Our results are generally inconsistent with the displacement hypothesis. However, we do find evidence of substitution between gambling and other businesses in the entertainment and amusement sector. This conclusion lends credence to the view that gaming serves as a substitute for other forms of entertainment. Our results also imply that the search for displacement should probably be focused on activities that constitute the closest consumer substitutes. We conclude with a discussion of the policy implications for state regulation of this new source of revenue.