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

Peter J. Kuhn, Peter Kooreman, Adriaan R. Soetevent, Arie Kapteyn

NBER Working Paper No. 14035
Issued in May 2008
NBER Program(s):   LS   PE

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. We 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 we 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. We 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.

download in pdf format
   (387 K)

email paper

This paper is available as PDF (387 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w14035

Published: “ The Effects of Lottery Prizes on Winners and Their Neighbors : Evidence from the Dutch Postcode Lottery” (with Peter Koorem a n, Adriaan Soetevent, and A rie Kapteyn) American Economic Review 101 (5) (August 2011). pp 2226 - 2247

Users who downloaded this paper also downloaded these:
Durlauf t0203 Statistical Mechanics Approaches to Socioeconomic Behavior
Luttmer w10667 Neighbors as Negatives: Relative Earnings and Well-Being
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us