In most developed countries the betting and gaming sector has traditionally been highly regulated and heavily taxed. The motivation for this government intervention is usually stated as the need to correct a market failure.
A market failure occurs when the market does not result in an economically efficient outcome. In this case, the market failure is the negative externalities associated with gambling, which include the cost of debt and bankruptcy, increased crime rates, and the emotional costs to family and friends. It is worth noting that many of these externalities are difficult to measure and hard to quantify in monetary terms. This means it is difficult to perform a simple comparison of the costs and benefits of gambling, so there is much policy debate in relation to gambling and the role of government intervention.
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