This paper develops a theoretical model of how bookmakers' odds are determined, given varying levels of inside information on the part of punters. Bookmakers' attitudes towards risk and the degree of competition between them will influence bookmaker behaviour. Using a data set of 1,696 races in Ireland in 1993, we find that bookmakers are extremely risk-averse, and estimate that operating costs and monopoly rents combined account for up to 4 per cent of turnover and that between 3.1 and 3.7 per cent of betting is by punters with inside information.
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Paper provided by Trinity College Dublin, Department of Economics in its series Economics Technical Papers with number
969.
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Find related papers by JEL classification: D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing