Eliminating the Black Market: Evidence from a Lottery Gambling Policy in Thailand

This paper investigates the impacts and implications of a supply-side intervention of black market transactions using a natural experiment from lottery markets in Thailand. Between June 2003 and November 2006, the Thai government imposed a crackdown on the black-market lottery while introducing a new lottery with similar characteristics as a substitute. Using panel data of Thai households, we find that the intervention was effective in eliminating the black-market lottery. Household spending on the black-market lottery dropped sharply after June 2003 and increased again after November 2006. The substitution from the black-market lottery to the government lottery in 2003 was small, while the reverse substitution in 2006 was large. We also find that gambling was habitual and the intervention that breaks the habit had a long-term impact on gambling behavior, i.e., a persistent decrease in expenditures on both illegal and legal lotteries.