UP School of Economics Discussion Papers Discussion Paper No. 2011-03 May 2011 The Demand for Unfair Gambles: Why Illegal Lotteries Persist by Desiree A. Desierto*, John V.C. Nye**, Jema M. Pamintuan*** *University of the Philippines School of Economics **Economics Department, George Mason University ***Ateneo de Manila University, School of Humanities UPSE Discussion Papers are preliminary versions circulated privately to elicit critical comments. They are protected by Copyright Law (PD No. 49) and are not for quotation or reprinting without prior approval. The Demand for Unfair Gambles: Why Illegal Lotteries Persist DESIREE A. DESIERTO, JOHN V.C. NYE, JEMA M. PAMINTUAN Version: May 2, 2011 We show how cheating in illegal gambling can be sustained in equilibrium, even when gamblers are aware of it. Not only is cheating pro…t-maximizing for operators, but it can also be utility-maximizing if it provides gamblers the oppor- tunity to engage in other related activities that generate non-monetary rewards, such as practicing superstitions. This, in turn, suggests why legalizing gambling might not fully capture the gains from the illegal market - operators and gamblers both prefer cheating, but this would be harder to hide in a legalized environment. We illustrate the model, generate results, and verify them empirically, using the example of jueteng, an illegal numbers game in the Philippines. 0 D. Desierto (corresponding author): University of the Philippines, School of Eco- nomics, Diliman, Q.C. 1101, email:
[email protected]; J. Nye: Economics De- partment, George Mason University, Carow Hall MSN 1D3, 4400 University Drive, Fair- fax VA 22030, email:
[email protected]; J.