Working Paper: NBER ID: w15713
Authors: Brian G. Knight; Nathan Schiff
Abstract: This paper investigates competition between jurisdictions in the context of cross-border shopping for state lottery tickets. We first develop a simple theoretical model in which consumers choose between state lotteries and face a trade-off between travel costs and the price of a fair gamble, which is declining in the size of the jackpot and the odds of winning. Given this trade-off, the model predicts that per-resident sales should be more responsive to prices in small states with densely populated borders, relative to large states with sparsely populated borders. Our empirical analysis focuses on the multi-state games of Powerball and Mega Millions, and the identification strategy is based upon high-frequency variation in prices due to the rollover feature of lottery jackpots. The empirical results support the predictions of the model. The magnitude of these effects is large, suggesting that states do face competitive pressures from neighboring lotteries, but the effects vary significantly across states.
Keywords: No keywords provided
JEL Codes: H20; H70
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| lottery sales per capita (H27) | large jackpots (H27) |
| large jackpots (H27) | lottery sales per capita (H27) |
| crossborder shopping significant (F69) | relationship between sales and prices stronger in small states (P22) |
| small densely populated states (H73) | stronger competitive pressures from neighboring lotteries (H27) |