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The Ticket to Easy Street? The Financial Consequences of Winning the Lottery

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Author Info
Mark L. Hoekstra
Scott Hankins
Paige Marta Skiba
Abstract

This paper examines whether giving large cash transfers to financially distressed people causes them to avoid bankruptcy. Results from comparing Florida Lottery winners who randomly received $50,000 to $150,000 to small winners indicate that such transfers only postpone bankruptcy rather than prevent it. A deeper examination of bankruptcy filings shows that large winners subsequently filed for bankruptcy with similar levels of net assets and unsecured debt as small winners, suggesting that they consumed their winnings. Collectively, our findings suggest that skepticism regarding the long-term effect of cash transfers may be warranted and offer support for the strategic model of bankruptcy.

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Paper provided by University of Pittsburgh, Department of Economics in its series Working Papers with number 344.

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Date of creation: Apr 2008
Date of revision: Oct 2009
Handle: RePEc:pit:wpaper:344

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Find related papers by JEL classification:
D14 - Microeconomics - - Household Behavior - - - Personal Finance
K35 - Law and Economics - - Other Substantive Areas of Law - - - Personal Bankruptcy Law
D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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  1. Lindahl, Mikael, 2002. "Estimating the Effect of Income on Health and Mortality Using Lottery Prizes as Exogenous Source of Variation in Income," IZA Discussion Papers 442, Institute for the Study of Labor (IZA). [Downloadable!]
  2. Annamaria Lusardi & Olivia S Mitchelli, 2007. "Financial Literacy and Retirement Preparedness: Evidence and Implications for Financial Education," Business Economics, Palgrave Macmillan Journals, vol. 42(1), pages 35-44, January. [Downloadable!] (restricted)
  3. 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. [Downloadable!]
  4. Thaler, Richard H, 1990. "Saving, Fungibility, and Mental Accounts," Journal of Economic Perspectives, American Economic Association, vol. 4(1), pages 193-205, Winter. [Downloadable!] (restricted)
  5. Guido W. Imbens & Donald B. Rubin & Bruce I. Sacerdote, 2001. "Estimating the Effect of Unearned Income on Labor Earnings, Savings, and Consumption: Evidence from a Survey of Lottery Players," American Economic Review, American Economic Association, vol. 91(4), pages 778-794, September. [Downloadable!] (restricted)
  6. Annamaria Lusardi & Olivia Mitchell, 2006. "Financial Literacy and Retirement Preparedness: Evidence and Implications for Financial Education Programs," Working Papers wp144, University of Michigan, Michigan Retirement Research Center. [Downloadable!]
  7. Ted O'Donoghue & Matthew Rabin, 1999. "Doing It Now or Later," American Economic Review, American Economic Association, vol. 89(1), pages 103-124, March. [Downloadable!] (restricted)
  8. Mikael Lindahl, 2005. "Estimating the Effect of Income on Health and Mortality Using Lottery Prizes as an Exogenous Source of Variation in Income," Journal of Human Resources, University of Wisconsin Press, vol. 40(1). [Downloadable!] (restricted)
  9. Shapiro, Jesse M., 2005. "Is there a daily discount rate? Evidence from the food stamp nutrition cycle," Journal of Public Economics, Elsevier, vol. 89(2-3), pages 303-325, February. [Downloadable!] (restricted)
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  10. Sumit Agarwal & Chunlin Liu & Nicholas S. Souleles, 2007. "The Reaction of Consumer Spending and Debt to Tax Rebates-Evidence from Consumer Credit Data," Journal of Political Economy, University of Chicago Press, vol. 115(6), pages 986-1019, December. [Downloadable!] (restricted)
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