This paper analyses the social cost of gambling in Macao before and after the liberalisation of the gaming industry from a welfare economic perspective. We identify seven principal items of social cost relating to gambling and, using data from 2003 and 2007, we calculate that the social cost of gambling in Macao rose by 163%, from US$40 million to US$106 million, during this period. We argue that this sharp escalation is the result of both the increasing gambling supply in recent years and the historical effect of the previous underdeveloped monopoly system. We acknowledge that our calculations are underestimations as a result of data limitation and we expect that the social cost of gambling in Macao will continue to rise in the coming years. Moreover, if the calculation is expanded to include the social costs incurred by tourists, the social cost of gambling in Macao should be much higher. © 2011 Taylor & Francis.