The Peculiar Scale Economies of Lotto
The best-selling lottery game in the United States is lotto, a parimutuel game of long odds and large jackpots. Unlike in the other popular lottery games (numbers and instant). there is a strong tendency for per-capita lotto sales to increase with the size of the population base. The fact that the jackpot also tends to increase with population size is not a complete explanation, since the probability of winning tends to be inversely proportional to state population. our explanation for why the games are more successful in large states is that players tend to judge the likelihood of winning based on the frequency with which someone wins; then a larger state can offer a game at longer odds but the same perceived probability of winning as a smaller state.
|Date of creation:||Jul 1991|
|Date of revision:|
|Publication status:||published as American Economic Review, June 1993|
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- Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-40, June.
- Charles T. Clotfelter & Philip J. Cook, 1987. "Implicit Taxation in Lottery Finance," NBER Working Papers 2246, National Bureau of Economic Research, Inc.
- Milton Friedman & L. J. Savage, 1948. "The Utility Analysis of Choices Involving Risk," Journal of Political Economy, University of Chicago Press, vol. 56, pages 279.
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