The Economic Implications of the Lottery

The lottery is a game in which people pay to enter a drawing for a prize, such as cash or goods. The odds of winning are based on the number of tickets purchased and the frequency of those tickets being drawn. The higher the ticket sales, the better the odds of winning, but the prize amounts are usually small. Many states have lotteries.

State lotteries usually begin with the state legitimizing a monopoly; establishing a public corporation to run the lottery (as opposed to licensing a private firm in exchange for a portion of the profits); starting operations with a modest number of relatively simple games; and — driven by demand — continually expanding their size and complexity. The resulting revenues are then typically allocated by the state, as shown in Table 7.2.

Lottery profits can be used to fund a variety of public and private ventures, from paving roads to building churches. Some of the most prestigious universities in the United States, including Harvard and Yale, were originally funded by lotteries. In colonial America, lotteries were common, and even George Washington sponsored one in 1760 to help finance construction of the Mountain Road in Virginia.

In general, lotteries have wide public support. Surveys show that 60% of adults report playing at least once a year. Many people use the proceeds of the lottery to supplement their income, particularly when they cannot afford to meet basic living expenses. However, a large segment of the population considers the money ill-gotten. Some state governments impose prohibitions on the purchase of lottery tickets, while others limit its distribution and participation.

Most states with lotteries have developed extensive and specialized constituencies, such as convenience store owners (who are the primary vendors for the games); lottery suppliers (heavy contributions by these entities to state political campaigns are regularly reported); teachers (in those states in which some of the profits are earmarked for education); and state legislators (who quickly become accustomed to the extra revenue).

While many people enjoy playing the lottery as a pastime, it also has serious economic implications. It is estimated that the lottery generates $234.1 billion for the states, including taxes and fees on players. Lottery revenues have risen dramatically since their introduction, but over time they tend to level off and even decline. This has been attributed to “lottery boredom,” and the steady introduction of new games has aimed to reduce it.