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The Own and Social Effects of an Unexpected Income Shock Evidence from the Dutch Postcode Lottery

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Listed:
  • Peter Kuhn
  • Peter Kooreman
  • Adriaan R. Soetevent
  • Arie Kapteyn

Abstract

In the Dutch Postcode Lottery a postal code (19 households on average) is randomly selected weekly, and prizes — consisting of cash and a new BMW — are awarded to lottery participants living in that postal code. On average, this generates a temporary, unexpected income shock equal to about eight months of income for about one third of the households in a typical winning code, while leaving the incomes of nonwinning, neighboring households unaffected. The authors study the responses of consumption and reported happiness of both winners and nonwinners to these shocks. Consistent with simple models of in-kind transfers, the overwhelming majority of households who won a BMW convert it into cash. With the exception of food away from home, the only 'own' effects of cash winnings they detect are on durables expenditures and car consumption; these results support a version of the permanent income hypothesis in which durable spending is used to smooth consumption. They detect social effects of neighbors' winnings on two types of consumption: cars and exterior home renovations. Six months after the fact, winning the lottery does not make households happier, nor do neighbors' winnings reduce happiness.

Suggested Citation

  • Peter Kuhn & Peter Kooreman & Adriaan R. Soetevent & Arie Kapteyn, 2008. "The Own and Social Effects of an Unexpected Income Shock Evidence from the Dutch Postcode Lottery," Working Papers WR-574, RAND Corporation.
  • Handle: RePEc:ran:wpaper:wr-574
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    Cited by:

    1. Christian Ghiglino, 2011. "When Veblen meets Krugman," 2011 Meeting Papers 768, Society for Economic Dynamics.
    2. Ricardo Pagán-Rodríguez, 2012. "Longitudinal Analysis of the Domains of Satisfaction Before and After Disability: Evidence from the German Socio-Economic Panel," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 108(3), pages 365-385, September.
    3. Benedicte Apouey & Andrew E. Clark, 2015. "Winning Big but Feeling no Better? The Effect of Lottery Prizes on Physical and Mental Health," Health Economics, John Wiley & Sons, Ltd., vol. 24(5), pages 516-538, May.
    4. Mark Stelzner, 2022. "Growth, Consumption, and Happiness: Modeling the Easterlin Paradox," Journal of Happiness Studies, Springer, vol. 23(2), pages 377-389, February.
    5. Matteo Picchio & Sigrid Suetens & Jan C. van Ours, 2018. "Labour Supply Effects of Winning a Lottery," Economic Journal, Royal Economic Society, vol. 128(611), pages 1700-1729, June.
    6. Peter Kuhn & Peter Kooreman & Adriaan Soetevent & Arie Kapteyn, 2011. "The Effects of Lottery Prizes on Winners and Their Neighbors: Evidence from the Dutch Postcode Lottery," American Economic Review, American Economic Association, vol. 101(5), pages 2226-2247, August.
    7. Frijters, Paul & Johnston, David W. & Shields, Michael A., 2008. "Happiness Dynamics with Quarterly Life Event Data," IZA Discussion Papers 3604, Institute of Labor Economics (IZA).
    8. Matteo Picchio & Sigrid Suetens & Jan C. van Ours, 2018. "Labour Supply Effects of Winning a Lottery," Economic Journal, Royal Economic Society, vol. 128(611), pages 1700-1729, June.
    9. Benedicte Apouey & Andrew E. Clark, 2015. "Winning Big but Feeling no Better? The Effect of Lottery Prizes on Physical and Mental Health," Health Economics, John Wiley & Sons, Ltd., vol. 24(5), pages 516-538, May.
    10. Benedicte Apouey & Andrew E. Clark, 2015. "Winning Big but Feeling no Better? The Effect of Lottery Prizes on Physical and Mental Health," Health Economics, John Wiley & Sons, Ltd., vol. 24(5), pages 516-538, May.
    11. Vinod Mishra & Ingrid Nielsen & Russell Smyth, 2010. "Relative Income, Temporary Life Shocks and Subjective Wellbeing in the Long-run," Monash Economics Working Papers 51-10, Monash University, Department of Economics.
    12. Christian Ghiglino & Sanjeev Goyal, 2010. "Keeping Up with the Neighbors: Social Interaction in a Market Economy," Journal of the European Economic Association, MIT Press, vol. 8(1), pages 90-119, 03.
    13. Peter Kuhn & Peter Kooreman & Adriaan R. Soetevent & Arie Kapteyn, 2008. "The Own and Social Effects of an Unexpected Income Shock," Tinbergen Institute Discussion Papers 08-048/1, Tinbergen Institute, revised 05 May 2010.
    14. Liliana Winkelmann & Rainer Winkelmann, 2010. "Does Inequality Harm the Middle Class?," Kyklos, Wiley Blackwell, vol. 63(2), pages 301-316, May.
    15. Christian Ghiglino, 2011. "When Veblen meets Krugman," 2011 Meeting Papers 768, Society for Economic Dynamics.

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    More about this item

    Keywords

    social interactions; quasi-experiments;

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models

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