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Public Policy and the Lottery


The lottery is a form of gambling that raises money for public benefit. Its roots reach back centuries—the Old Testament mentions casting lots for property distribution, and Roman emperors gave away slaves and land by drawing lots. Despite initial negative reactions, the modern lottery is now one of the most popular forms of gambling in the world, raising more than $80 billion per year worldwide.

Historically, lottery proceeds were used for everything from building the British Museum to funding the American Revolution and rebuilding Faneuil Hall. The early American lotteries were particularly controversial, and many of them were banned by state legislatures. However, once these early restrictions were lifted, the popularity of lotteries exploded. Today, they are the most popular source of revenue for state governments.

Lottery revenues are a classic example of how political officials, both on the executive and legislative sides of the aisle, make decisions in an environment where voters demand more government spending, while politicians want to increase revenue without increasing taxes. The result is that the evolution of state lotteries often proceeds in fits and starts, with specific stakeholders getting involved in a piecemeal fashion. For instance, convenience store owners have an interest in the lottery’s success (and its attendant advertising opportunities), while suppliers of equipment and services have a strong financial incentive to contribute heavily to state political campaigns.

As a result, the lottery becomes an entrenched feature of American life. But its continued existence also reveals a deeper flaw in the way public policy is made. The prevailing assumption, which is reinforced by the fact that few states have abolished their lotteries, is that a state can run a successful lottery by creating a monopoly, and then imposing regulations that ensure fairness and consumer protection. In reality, this approach is ineffective and dangerous to the economy.

Clearly, a more effective method of regulating the lottery is to require state officials to put aside some of the profits from the game to help fund essential government services. However, this is difficult to accomplish because it would necessitate either an increase in lottery taxes or a reduction in the quality of lottery services. Neither option is very appealing to voters.

The underlying problem is that state officials tend to prioritize lottery profits over the general welfare. This is a familiar dynamic in most areas of government, but it is particularly pronounced in the lottery sector. In the modern era, most states’ budgets are dependent on “painless” lottery revenue, and pressures to increase this revenue are relentless.

As a result, lottery officials have developed an elaborate system of incentives to encourage players to play more and more. These incentives include lowering the odds of winning, allowing more numbers to be drawn and increasing the size of prizes. As the odds of winning became increasingly improbable, the number of people playing soared. Alexander Hamilton nailed it when he said that the average person didn’t care about the difference between one-in-three-million odds and one-in-five-hundred-million.