We present an empirical test for the addictiveness of lottery gambling. To distinguish state dependence from serial correlation, we exploit an exogenous shock to local market consumption of lottery gambling. We use the sale of a winning ticket in the zip code, the location of which is random conditional on sales, as an instrument for present consumption and test for a causal relationship between present and future consumption. This test of addiction is based on the definition of addiction commonly used in the economics literature. It has two key advantages over previous tests for addiction. First, our test is unique in being based on an observed increase in consumption coming from a randomly assigned shock. Second, our approach estimates the time path of persistence non-parametrically. Our data from the Texas State Lottery suggests that after 6 months, roughly half of the initial increase in lottery consumption is maintained. After 18 months, roughly 40 percent of the initial shock persists, though estimates become less precise. These estimates provide an upper bound on the degree of addictiveness in lottery gambling. They also highlight the potential effectiveness of innovations and advertising campaigns designed to increase lottery gambling.
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Length: Date of creation: Feb 2009 Date of revision: Handle: RePEc:nbr:nberwo:14742
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Find related papers by JEL classification: D14 - Microeconomics - - Household Behavior - - - Personal Finance D62 - Microeconomics - - Welfare Economics - - - Externalities D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
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Boyer, Marcel, 1978.
"A Habit Forming Optimal Growth Model,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 19(3), pages 585-609, October.
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