Disrupting Illegal Markets: Evidence from a Lottery Intervention

Natt Hongdilokkul, Archawa Paweenawat, Krislert Samphantharak and Suparit Suwanik

No 218, PIER Discussion Papers from Puey Ungphakorn Institute for Economic Research

Abstract: 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.

Keywords: Illegal gambling; Lottery markets; Enforcement; Supply-side intervention; Habit formation; Behavioral persistence (search for similar items in EconPapers)
JEL-codes: D12 D91 K42 L83 O17 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2024-03, Revised 2026-09
New Economics Papers: this item is included in nep-iue and nep-sea
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