The Demand for Lottery Products
Lotteries constitute one of the fastest-growing categories of consumer expenditure in the United States. Not only have an increasing number of states legalized state lotteries, but the per capita expenditures on lotteries in lottery states have increased at an annual rate of 13 percent after inflation between 1975 and 1988. This article examines the demand for lottery products. A majority of the adult public in lottery states play in any one year, but relatively few of these players account for most of the action". Socioeconomic patterns of play, measured from both sales data and household surveys, offer some surprises -- for example, that the Engle curve of lottery expenditures decline with income. There is some evidence that lottery sales increase with the payout rate, although it is not clear that it would be profitable for the states to increase payout rates. The addition of a new game, such as lotto, does not undercut sales of existing games, and the oft-heard claim that interest (and sales) will "inevitably" decline is contradicted by the data. The organizational form of the lottery is evolving in response to the quest for higher revenues: in particular, smaller states are forming multistate game. This article is a chapter from Selling Hope: State Lotteries in America, an NBER monograph to be published by Harvard University Press in November, 1989.
Published as "Public Services, Private Substitutes, and the Demand for Protection Against Crime", American Economic Review, Vol. 67, no. 5 (1977): 867-877.