Maximizing Social Welfare through Variations in State Lottery Redistribution Methods

Reviewed by Yisehak Abraham

When you purchase a lottery ticket, is it purely for entertainment purposes or is there an element of altruism that makes purchasing a ticket similar to paying a voluntary tax to benefit your community? In her paper “Maximizing State Welfare through Variations in State Lottery Redistribution Methods”, Janine L’Heureux considers the burgeoning influence of private sector mechanisms in State affairs. More specifically, L’Heureux shows how states have utilized marketing techniques to exploit a perceived sense of altruism in lottery players to maximize revenues from the lottery, thereby having more resources to further benefit the public.

In the paper, L’Heureux studies the variation in proceeds between States that claim that proceeds will be earmarked for education spending and those that claim proceeds go towards General Funds (a basket of beneficiary programs). After assembling panel data on 37 states from the years 2000-2010, L’Heureux finds that states that claim to earmark proceeds experience a significant decline in their lotteries’ revenues overall–which the authors finds troubling considering the lengths to which these states go to advertise the efficiency of earmarking.

L’Heureux’s economic analysis is well rounded. She begins by introducing a paper by Landry and Price (2007) that isolates the effect of gambling with a concern for public welfare and vows to add a variable that was not considered while testing if the same results hold true in the years after the paper was published. L’Heureux’s paper is complete with a brief detour on the history of lotteries in the country and a brief analysis using game theory to question the rationality of lottery participants. Admittedly the paper’s econometric analysis could be more rigorous. Consideration of other control variables, such as level of education and median income, would improve the paper. However, L’Heureux’s paper highlights a very modern ethical conundrum and offers a plausible solution through credible, convincing evidence.

See the full paper here!

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