Lottery – The Good, the Bad, and the Ugly
Lottery is a game where participants pay for tickets, select a group of numbers (or have machines randomly spit them out), and win prizes if their selections match those chosen by a machine or other process. In most modern state-sponsored lotteries, a large number of small prizes are awarded in addition to one or more major prizes of significant value. The money collected through lotteries is used for a wide variety of public purposes. In the United States, for example, lottery funds have financed everything from road construction and building schools to subsidized housing and kindergarten placements.
State politicians, in fact, often promote lotteries primarily as sources of “painless” revenue: they are a way for the general public to spend their own money voluntarily (as opposed to paying taxes) for the benefit of the public good. This message is effective: in the short term, lottery revenues expand dramatically, and a state can quickly rely on them as a substantial part of its budget.
However, the long-term growth of lottery revenues is much less certain. After a period of dramatic expansion, revenues typically level off and eventually decline. Historically, state lotteries have responded to this trend by introducing new games in an attempt to maintain or increase revenues.
In the immediate post-World War II period, lottery advocates promoted the notion that they would allow states to expand social safety nets without imposing particularly onerous taxes on middle and working class families. But by the 1960s, this arrangement was beginning to unravel as state expenditures increased while the national economy weakened and incomes stagnated.
Since then, most state lotteries have sought to maintain their popularity by constantly expanding the size and complexity of their offerings. This strategy has been successful in the short run, but it has also led to considerable public discontent.
Lottery critics are concerned that the promotion of gambling is at cross-purposes with a state’s other duties and may have negative effects on lower-income populations. They are also concerned that the state is promoting an addictive activity and is attracting problem gamblers. While these concerns are important, they often overstate the actual impact of lottery operations.
In addition to the monetary prize, lottery players can expect entertainment and other non-monetary benefits from the purchase of tickets. If these are sufficiently valuable to a particular individual, then the ticket purchase could be a rational decision. This is especially true if the expected utility of a monetary loss is outweighed by the positive utilitarian value of other possible outcomes. The evidence suggests, however, that the bulk of lottery participants and revenues come from middle-income neighborhoods, while low-income residents participate at disproportionately lower rates. This imbalance is likely to persist as state lotteries continue their expansion. Moreover, it is not clear that the entertainment and other non-monetary benefits of the lottery can make up for this distortion. A more efficient alternative to the lottery would be a tax on tobacco and alcohol.