NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Measuring the Output and Prices of the Lottery Sector: An Application of Implicit Expected Utility Theory

Kam Yu

NBER Working Paper No. 14020
Issued in May 2008
NBER Program(s):   PR

Using implicit expected utility theory, a money metric of utility derived from playing a lottery game is developed. Output of the lottery sector can be defined as the difference in utility with and without the game. Using a kinked parametric functional form, outputs of the Canadian Lotto 6/49 are estimated. Results show that this direct economic approach yield an average output which is almost three times of the official GDP, which takes total factor costs as output. A by-product of the estimation is an implicit price index for lottery, which can serve as a cost-of-living index for the CPI. The estimated price elasticity of demand -0.67 closely resembles results for the U.K. and Israel in previous studies.

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Document Object Identifier (DOI): 10.3386/w14020

Published: Measuring the Output and Prices of the Lottery Sector: An Application of Implicit Expected Utility Theory, Kam Yu. in Price Index Concepts and Measurement, Diewert, Greenlees, and Hulten. 2009

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