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Estimating the Demand for Lottery Gambling

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  • Richard A. Dunn
  • Michael A. Trousdale

Abstract

This study examines the role of functional form and the definition of effective price in the estimation of the demand elasticity for Lotto Texas. Using a nonparametric local mean function analysis, we find that the demand restriction imbedded in a semilog specification with effective price defined as net expected revenue per ticket best matches the observed data. In contrast, the restriction of a constant elasticity of sales with respect to net expected revenue—implicitly assumed by the log-linear specification typically adopted in this literature—is strongly rejected. Further, we find that omission of drawings with negative net expected revenue can meaningfully influence coefficient estimation. Our regression analysis finds that the effect of omitting such drawings is an order of magnitude times greater than that of failing to account for the endogeneity of effective price.

Suggested Citation

  • Richard A. Dunn & Michael A. Trousdale, 2015. "Estimating the Demand for Lottery Gambling," Public Finance Review, , vol. 43(6), pages 691-716, November.
    • Handle: RePEc:sae:pubfin:v:43:y:2015:i:6:p:691-716
    DOI: 10.1177/1091142114543738
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    References listed on IDEAS

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    1. R. D. Baker & I. G. McHale, 2009. "Modelling the probability distribution of prize winnings in the UK National Lottery: consequences of conscious selection," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 172(4), pages 813-834, October.
    2. Price, Donald I. & Novak, E. Shawn, 1999. "The Tax Incidence of Three Texas Lottery Games: Regressivity, Race, and Education," National Tax Journal, National Tax Association;National Tax Journal, vol. 52(4), pages 741-752, December.
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    Cited by:

    1. Luke P. Rodgers, 2020. "Don’t Tax My Dreams: The Lottery Sales Response to Gambling Tax Changes," Public Finance Review, , vol. 48(5), pages 627-649, September.
    2. Michael A. Trousdale & Richard A. Dunn, 2014. "Demand for Lottery Gambling: Evaluating Price Sensitivity Within a Portfolio of Lottery Games," National Tax Journal, National Tax Association;National Tax Journal, vol. 67(3), pages 595-620, September.

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