IDEAS home Printed from https://ideas.repec.org/a/sae/pubfin/v43y2015i6p691-716.html
   My bibliography  Save this article

Estimating the Demand for Lottery Gambling

Author

Listed:
  • Richard A. Dunn
  • Michael A. Trousdale

Abstract

This study examines the role of functional form and the definition of effective price in the estimation of the demand elasticity for Lotto Texas. Using a nonparametric local mean function analysis, we find that the demand restriction imbedded in a semilog specification with effective price defined as net expected revenue per ticket best matches the observed data. In contrast, the restriction of a constant elasticity of sales with respect to net expected revenue—implicitly assumed by the log-linear specification typically adopted in this literature—is strongly rejected. Further, we find that omission of drawings with negative net expected revenue can meaningfully influence coefficient estimation. Our regression analysis finds that the effect of omitting such drawings is an order of magnitude times greater than that of failing to account for the endogeneity of effective price.

Suggested Citation

  • Richard A. Dunn & Michael A. Trousdale, 2015. "Estimating the Demand for Lottery Gambling," Public Finance Review, , vol. 43(6), pages 691-716, November.
    • Handle: RePEc:sae:pubfin:v:43:y:2015:i:6:p:691-716
    DOI: 10.1177/1091142114543738
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/1091142114543738
    Download Restriction: no
    File URL: https://libkey.io/10.1177/1091142114543738?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. R. D. Baker & I. G. McHale, 2009. "Modelling the probability distribution of prize winnings in the UK National Lottery: consequences of conscious selection," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 172(4), pages 813-834, October.
    2. Price, Donald I. & Novak, E. Shawn, 1999. "The Tax Incidence of Three Texas Lottery Games: Regressivity, Race, and Education," National Tax Journal, National Tax Association;National Tax Journal, vol. 52(4), pages 741-752, December.
    3. Paul M. Mason & Jeffrey W. Steagall & Michael M. Fabritius, 1997. "The Elasticity of Demand for Lotto Tickets and the Corresponding Welfare Effects," Public Finance Review, , vol. 25(5), pages 474-490, September.
    4. Garrett, Thomas A. & Sobel, Russell S., 1999. "Gamblers favor skewness, not risk: Further evidence from United States' lottery games," Economics Letters, Elsevier, vol. 63(1), pages 85-90, April.
    5. 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.
    6. Forrest, David & Gulley, O. David & Simmons, Robert, 2000. "Elasticity of Demand for UK National Lottery Tickets," National Tax Journal, National Tax Association;National Tax Journal, vol. 53(4), pages 853-864, December.
    7. Rubenstein, Ross & Scafidi, Benjamin, 2002. "Who Pays and Who Benefits? Examining the Distributional Consequences of the Georgia Lottery for Education," National Tax Journal, National Tax Association, vol. 55(N. 2), pages 223-238, June.
    8. Thomas A. Garrett & Russell S. Sobel, 2004. "State Lottery Revenue: The Importance of Game Characteristics," Public Finance Review, , vol. 32(3), pages 313-330, May.
    9. Scoggins, John F., 1995. "The Lotto and Expected Net Revenue," National Tax Journal, National Tax Association, vol. 48(1), pages 61-70, March.
    10. Jonathan Guryan & Melissa S. Kearney, 2010. "Is Lottery Gambling Addictive?," American Economic Journal: Economic Policy, American Economic Association, vol. 2(3), pages 90-110, August.
    11. 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.
    12. Oster, Emily, 2004. "Are All Lotteries Regressive? Evidence From the Powerball," National Tax Journal, National Tax Association;National Tax Journal, vol. 57(2), pages 179-187, June.
    13. Charles T. Clotfelter & Philip J. Cook, 1989. "Selling Hope: State Lotteries in America," NBER Books, National Bureau of Economic Research, Inc, number clot89-1, March.
    14. Kathryn Combs & Jaebeom Kim & John Spry, 2008. "The relative regressivity of seven lottery games," Applied Economics, Taylor & Francis Journals, vol. 40(1), pages 35-39.
    15. Forrest, David & Gulley, O. David & Simmons, Robert, 2000. "Elasticity of Demand for UK National Lottery Tickets," National Tax Journal, National Tax Association, vol. 53(n. 4), pages 853-64, December.
    16. Price, Donald I. & Novak, E. Shawn, 1999. "The Tax Incidence of Three Texas Lottery Games: Regressivity, Race, and Education," National Tax Journal, National Tax Association, vol. 52(n. 4), pages 741-52, December.
    17. Farrell, Lisa, et al, 2000. "The Demand for Lotto: The Role of Conscious Selection," Journal of Business & Economic Statistics, American Statistical Association, vol. 18(2), pages 228-241, April.
    18. Scoggins, John F., 1995. "The Lotto and Expected Net Revenue," National Tax Journal, National Tax Association;National Tax Journal, vol. 48(1), pages 61-70, March.
    19. Rubenstein, Ross & Scafidi, Benjamin, 2002. "Who Pays and Who Benefits? Examining the Distributional Consequences of the Georgia Lottery for Education," National Tax Journal, National Tax Association;National Tax Journal, vol. 55(2), pages 223-238, June.
    20. Rose Baker & Ian G. McHale, 2011. "Investigating the behavioural characteristics of lottery players by using a combination preference model for conscious selection," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 174(4), pages 1071-1086, October.
    21. Levi Perez & David Forrest, 2011. "Own‐ And Cross‐Price Elasticities For Games Within A State Lottery Portfolio," Contemporary Economic Policy, Western Economic Association International, vol. 29(4), pages 536-549, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Luke P. Rodgers, 2020. "Don’t Tax My Dreams: The Lottery Sales Response to Gambling Tax Changes," Public Finance Review, , vol. 48(5), pages 627-649, September.
    2. Michael A. Trousdale & Richard A. Dunn, 2014. "Demand for Lottery Gambling: Evaluating Price Sensitivity Within a Portfolio of Lottery Games," National Tax Journal, National Tax Association;National Tax Journal, vol. 67(3), pages 595-620, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kent Grote & Victor Matheson, 2011. "The Economics of Lotteries: An Annotated Bibliography," Working Papers 1110, College of the Holy Cross, Department of Economics.
    2. Michael A. Trousdale & Richard A. Dunn, 2014. "Demand for Lottery Gambling: Evaluating Price Sensitivity Within a Portfolio of Lottery Games," National Tax Journal, National Tax Association;National Tax Journal, vol. 67(3), pages 595-620, September.
    3. Thomas A. Garrett, 2011. "A closer look at the tax incidence of instant lottery games: an analysis by price point," Working Papers 2011-010, Federal Reserve Bank of St. Louis.
    4. Kent Grote & Victor Matheson, 2011. "The Economics of Lotteries: A Survey of the Literature," Working Papers 1109, College of the Holy Cross, Department of Economics.
    5. Garrett, Thomas A. & Coughlin, Cletus C., 2009. "Inter–Temporal Differences in the Income Elasticity of Demand for Lottery Tickets," National Tax Journal, National Tax Association;National Tax Journal, vol. 62(1), pages 77-99, March.
    6. Thomas A. Garrett & Natalia A. Kolesnikova, 2010. "Local price variation and the tax incidence of state lotteries," Working Papers 2010-035, Federal Reserve Bank of St. Louis.
    7. Ghent, Linda S. & Grant, Alan P., 2010. "The Demand for Lottery Products and Their Distributional Consequences," National Tax Journal, National Tax Association;National Tax Journal, vol. 63(2), pages 253-268, June.
    8. S. Capacci & E. Randon & A. E. Scorcu, 2014. "Luck vs Skill in Gambling over the Recession. Evidence from Italy," Working Papers wp918, Dipartimento Scienze Economiche, Universita' di Bologna.
    9. Humphreys, Brad & Perez, Levi, 2011. "Lottery Participants and Revenues: An International Survey of Economic Research on Lotteries," Working Papers 2011-17, University of Alberta, Department of Economics.
    10. Ursula Hauser‐Rethaller & Ulrich König, 2002. "Parimutuel Lotteries: Gamblers' Behavior and the Demand for Tickets," German Economic Review, Verein für Socialpolitik, vol. 3(2), pages 223-245, May.
    11. Chen, Shu-Heng & Chie, Bin-Tzong, 2008. "Lottery markets design, micro-structure, and macro-behavior: An ACE approach," Journal of Economic Behavior & Organization, Elsevier, vol. 67(2), pages 463-480, August.
    12. Cletus C. Coughlin & Thomas A. Garrett, 2008. "Income and lottery sales: transfers trump income from work and wealth," Working Papers 2008-004, Federal Reserve Bank of St. Louis.
    13. Jaume García & Plácido Rodríguez, 2007. "The Demand for Football Pools in Spain," Journal of Sports Economics, , vol. 8(4), pages 335-354, August.
    14. M. Forster & E. Randon, 2019. "Do lottery operators exploit their lottery power? Efficiency and equality considerations in optimal lottery design," Working Papers wp1135, Dipartimento Scienze Economiche, Universita' di Bologna.
    15. Cletus C. Coughlin & Thomas A. Garrett, 2009. "Income and Lottery Sales," Public Finance Review, , vol. 37(4), pages 447-469, July.
    16. Thomas A. Garrett, 2012. "The Distributional Burden of Instant Lottery Ticket Expenditures," Public Finance Review, , vol. 40(6), pages 767-788, November.
    17. Thomas Garrett, 2001. "An International Comparison and Analysis of Lotteries and the Distribution of Lottery Expenditures," International Review of Applied Economics, Taylor & Francis Journals, vol. 15(2), pages 213-227.
    18. Linda S. Ghent & Alan P. Grant, 2007. "Are Voting and Buying Behavior Consistent? Evidence from the South Carolina Education Lottery," Public Finance Review, , vol. 35(6), pages 669-688, November.
    19. Kathryn L. Combs & John A. Spry, 2012. "Who plays the numbers games in the middle of the day?," Applied Economics, Taylor & Francis Journals, vol. 44(7), pages 889-897, March.
    20. R. D. Baker & I. G. McHale, 2009. "Modelling the probability distribution of prize winnings in the UK National Lottery: consequences of conscious selection," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 172(4), pages 813-834, October.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:pubfin:v:43:y:2015:i:6:p:691-716. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.