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Spatial Competition and Cross-Border Shopping: Evidence from State Lotteries

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Author Info

  • Brian Knight
  • Nathan Schiff

Abstract

This paper investigates competition between jurisdictions in the context of cross-border shopping for state lottery tickets. Our theoretical model, in which consumers consider both travel costs and lottery payoffs, predicts that per-resident sales should be more responsive to prices in small states with densely populated borders. Using weekly sales data from US lotteries and drawing identification from the rollover feature of jackpots, we estimate this responsiveness and find large effects that vary significantly across states. Using these estimates, we show that competitive pressures from neighboring states may lead to substantially lower optimal prices. (JEL H27, H71, H73, R51)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/pol.4.4.199
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File URL: http://www.aeaweb.org/aej/pol/data/2011-0039_data.zip
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Journal: Economic Policy.

Volume (Year): 4 (2012)
Issue (Month): 4 (November)
Pages: 199-229

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Handle: RePEc:aea:aejpol:v:4:y:2012:i:4:p:199-229

Note: DOI: 10.1257/pol.4.4.199
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References

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  1. Oster, Emily, 2004. "Are All Lotteries Regressive? Evidence from the Powerball," National Tax Journal, National Tax Association, vol. 57(2), pages 179-87, June Cita.
  2. Case, Anne C. & Rosen, Harvey S. & Hines, James Jr., 1993. "Budget spillovers and fiscal policy interdependence : Evidence from the states," Journal of Public Economics, Elsevier, vol. 52(3), pages 285-307, October.
  3. Kearney, Melissa Schettini, 2005. "State lotteries and consumer behavior," Journal of Public Economics, Elsevier, vol. 89(11-12), pages 2269-2299, December.
  4. Jan K. Brueckner & Luz A. Saavedra, 2000. "Do Local Governments Engage in Strategic Property-Tax Competition?," Econometric Society World Congress 2000 Contributed Papers 0357, Econometric Society.
  5. Tosun, Mehmet Serkan & Skidmore, Mark, 2004. "Interstate Competition and State Lottery Revenues," National Tax Journal, National Tax Association, vol. 57(2), pages 163-78, June Cita.
  6. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
  7. Lovenheim, Michael F., 2008. "How Far to the Border?: The Extent and Impact of Cross-Border Casual Cigarette Smuggling," National Tax Journal, National Tax Association, vol. 61(1), pages 7-33, March Cit.
  8. Cook, Philip J & Clotfelter, Charles T, 1993. "The Peculiar Scale Economies of Lotto," American Economic Review, American Economic Association, vol. 83(3), pages 634-43, June.
  9. Mark Edward Stover, 1990. "Contiguous state lotteries: Substitutes or complements?," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 9(4), pages 565-568.
  10. Jonathan Guryan & Melissa S. Kearney, 2008. "Gambling at Lucky Stores: Empirical Evidence from State Lottery Sales," American Economic Review, American Economic Association, vol. 98(1), pages 458-73, March.
  11. Melissa S. Kearney, 2005. "The Economic Winners and Losers of Legalized Gambling," NBER Working Papers 11234, National Bureau of Economic Research, Inc.
  12. repec:rje:randje:v:37:y:2006:i:4:p:964-982 is not listed on IDEAS
  13. Doyle Jr., Joseph J. & Samphantharak, Krislert, 2008. "$2.00 Gas! Studying the effects of a gas tax moratorium," Journal of Public Economics, Elsevier, vol. 92(3-4), pages 869-884, April.
  14. Clotfelter, Charles T & Cook, Philip J, 1990. "On the Economics of State Lotteries," Journal of Economic Perspectives, American Economic Association, vol. 4(4), pages 105-19, Fall.
  15. Asplund, Björn Marcus & Friberg, Richard & Wilander, Fredrik, 2005. "Demand and Distance: Evidence on Cross-Border Shopping," CEPR Discussion Papers 4983, C.E.P.R. Discussion Papers.
  16. Kearney, Melissa Schettini, 2005. "The Economic Winners and Losers of Legalized Gambling," National Tax Journal, National Tax Association, vol. 58(2), pages 281-302, June Cita.
  17. Peter Davis, 2006. "Spatial competition in retail markets: movie theaters," RAND Journal of Economics, RAND Corporation, vol. 37(4), pages 964-982, December.
  18. Garrett, Thomas A. & Marsh, Thomas L., 2002. "The revenue impacts of cross-border lottery shopping in the presence of spatial autocorrelation," Regional Science and Urban Economics, Elsevier, vol. 32(4), pages 501-519, July.
  19. Brown, Ryan P. & Rork, Jonathan C., 2005. "Copycat gaming: A spatial analysis of state lottery structure," Regional Science and Urban Economics, Elsevier, vol. 35(6), pages 795-807, November.
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Cited by:
  1. Brian Knight, 2013. "State Gun Policy and Cross-State Externalities: Evidence from Crime Gun Tracing," American Economic Journal: Economic Policy, American Economic Association, vol. 5(4), pages 200-229, November.

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