Disrupting Illegal Markets: Evidence from a Lottery Intervention

This paper studies the effects of a temporary supply-side intervention on illegalmarket activity using a natural experiment from lottery markets in Thailand. Between 2003 and 2006, the Thai government combined a crackdown on illegal lotteries with the introduction of a legal substitute. Using household-level panel data, we show that the intervention led to a sharp decline in black-market lottery spending, with only limited substitution to the legal lottery. After the policy was reversed, households shifted back toward the black-market lottery, indicating substantial substitution into the illegal market once the legal alternative was removed. Despite this rebound, the intervention had persistent effects: black-market lottery spending remained below its pre-intervention level even after enforcement ended, with no evidence of offsetting substitution toward other forms of gambling. These findings suggest that, in this setting, a temporary supply-side intervention generated a lasting reduction in illegal-market activity, raising the possibility that evaluations based only on short-run responses may underestimate the long-run effects of enforcement policies.