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What drives lottery demand? Evidence from China's lottery practice

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  • Jia Yuan
  • Jason Z. Gao

Abstract

As governments draw increasing revenues from the lottery industry, it has become academically important, as well as for policy purposes, to better understand the factors that can explain lottery purchase decisions. The traditional literature uses either the expected return of each lottery ticket (effective price approach) or the jackpot size (jackpot approach) to explain the variation in lottery demand. In this article, we examine these two factors by exploiting a unique lottery game set-up in lottery practice in China. This lottery game is similar to lotteries in other countries except that there is a cap policy on the grand prize, which limits the reward of each jackpot winner. We show that this complex cap policy actually causes both the lottery effective price and the jackpot size to remain almost fixed for the majority of the time while lottery demand significantly fluctuates. The lack of variation suggests that, in China's practice, neither the effective price nor the jackpot size can explain the observed variation in lottery sales. Instead, we find that the size of the lottery rollover fits well in explaining the variation in lottery demand.

Suggested Citation

  • Jia Yuan & Jason Z. Gao, 2015. "What drives lottery demand? Evidence from China's lottery practice," International Gambling Studies, Taylor & Francis Journals, vol. 15(1), pages 159-178, April.
    • Handle: RePEc:taf:intgms:v:15:y:2015:i:1:p:159-178
    DOI: 10.1080/14459795.2014.1003316
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    References listed on IDEAS

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    1. Lisa Farrell & Edgar Morgenroth & Ian Walker, 1999. "A Time Series Analysis of U.K. Lottery Sales: Long and Short Run Price Elasticities," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(4), pages 513-526, November.
    2. Farrell, Lisa & Walker, Ian, 1999. "The welfare effects of lotto: evidence from the UK," Journal of Public Economics, Elsevier, vol. 72(1), pages 99-120, April.
    3. Papachristou, George & Karamanis, Dimitri, 1998. "Investigating efficiency in betting markets: Evidence from the Greek 6/49 Lotto," Journal of Banking & Finance, Elsevier, vol. 22(12), pages 1597-1615, December.
    4. Stephen Fink & Alan Marco & Jonathan Rork, 2004. "Lotto nothing? The budgetary impact of state lotteries," Applied Economics, Taylor & Francis Journals, vol. 36(21), pages 2357-2367.
    5. Farrell, Lisa & Morgenroth, Edgar & Walker, Ian, 1999. "A Time Series Analysis of U.K. Lottery Sales: Long and Short Run Price Elasticities," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(4), pages 513-526, November.
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    Cited by:

    1. Shang, Xuesong & Duan, Hebing & Lu, Jingyi, 2021. "Gambling versus investment: Lay theory and loss aversion," Journal of Economic Psychology, Elsevier, vol. 84(C).

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