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The Ticket to Easy Street? The Financial Consequences of Winning the Lottery

Author

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  • Mark L. Hoekstra
  • Scott Hankins
  • Paige Marta Skiba

Abstract

This paper examines whether giving large cash transfers to financially distressed people causes them to avoid bankruptcy. A comparison of Florida Lottery winners who randomly received $50,000 to $150,000 to small winners indicates that such transfers only postpone bankruptcy rather than prevent it, a result inconsistent with the negative shock model of bankruptcy. Furthermore, the large winners who subsequently filed for bankruptcy had similar net assets and unsecured debt as small winners. Thus, our findings suggest that skepticism regarding the long-term impact of cash transfers may be warranted.

Suggested Citation

  • Mark L. Hoekstra & Scott Hankins & Paige Marta Skiba, 2008. "The Ticket to Easy Street? The Financial Consequences of Winning the Lottery," Working Paper 344, Department of Economics, University of Pittsburgh, revised Mar 2010.
    • Handle: RePEc:pit:wpaper:344
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    File URL: http://www.econ.pitt.edu/papers/Mark_lottery.pdf
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    References listed on IDEAS

    as
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    7. Guido W. Imbens & Donald B. Rubin & Bruce I. Sacerdote, 2001. "Estimating the Effect of Unearned Income on Labor Earnings, Savings, and Consumption: Evidence from a Survey of Lottery Players," American Economic Review, American Economic Association, vol. 91(4), pages 778-794, September.
    8. Annamaria Lusardi & Olivia Mitchell, 2006. "Financial Literacy and Retirement Preparedness: Evidence and Implications for Financial Education Programs," Working Papers wp144, University of Michigan, Michigan Retirement Research Center.
    9. Shapiro, Jesse M., 2005. "Is there a daily discount rate? Evidence from the food stamp nutrition cycle," Journal of Public Economics, Elsevier, vol. 89(2-3), pages 303-325, February.
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    11. Mikael Lindahl, 2005. "Estimating the Effect of Income on Health and Mortality Using Lottery Prizes as an Exogenous Source of Variation in Income," Journal of Human Resources, University of Wisconsin Press, vol. 40(1).
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Lotteries and irrationality
      by chris dillow in Stumbling and Mumbling on 2009-01-22 21:08:34
    2. Don McNay: Bailouts Don't Work: The Lotto Winners Study
      by Don McNay in huffington post business on 2010-09-08 02:13:15

    Citations

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    Cited by:

    1. Jorgensen, Miriam & Morris, Peter, 2010. "Tribal experience with children's accounts," Children and Youth Services Review, Elsevier, vol. 32(11), pages 1528-1537, November.
    2. Jay Zagorsky, 2013. "Do People Save or Spend Their Inheritances? Understanding What Happens to Inherited Wealth," Journal of Family and Economic Issues, Springer, vol. 34(1), pages 64-76, March.
    3. Mark Hoekstra & Scott Hankins, 2007. "Lucky in Life, Unlucky in Love? The Effect of Random Income Shocks on Marriage and Divorce," Working Paper 329, Department of Economics, University of Pittsburgh, revised Jul 2010.

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    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • K35 - Law and Economics - - Other Substantive Areas of Law - - - Personal Bankruptcy Law
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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