THE DEMAND FOR WAGERING ON STATE-OPERATED LOTTO GAMES

Abstract

A number of studies have attempted to estimate demand functions for state-operated lottery games, usually with quarterly or annual data. A few include the price of a lottery bet as an independent variable, with generally unsatisfactory results. This is because the price of a lottery bet will be roughly constant over quarterly or annual time intervals. Focusing on one type of lottery game (lottos), we show that if the demand for betting on lottos is estimated on a drawing-by-drawing basis, a price variable can be included on the right-hand side. Doing so allows us to estimate a true demand function and to compute price elasticities. As a result, we can evaluate the extent to which state lottery agencies have structured their lotto games so as to maximize tax revenues.