Public Policy and the Lottery

The lottery is a classic example of public policy making being done piecemeal, with little overall direction or control. The establishment of a lottery often comes about as the result of a specific problem, such as a shortfall in state revenues. Then, the industry evolves and the decisions made at the time of adoption are generally overtaken by the broader issues that the lottery addresses. The result is that few, if any states, have a coherent gambling or lotteries policy.

The concept of drawing lots to determine fates has a long history, and the use of the lottery for material gain has been around as early as the 15th century. The first recorded lotteries to distribute money were in the Low Countries, where the prize money was used for a variety of purposes, including building town fortifications and helping the poor. These lotteries were hailed as a painless form of taxation, which was a great selling point for them.

As a business, the lottery is run for profit, and profits are achieved by maximizing ticket sales. This is achieved by constantly dangling the promise of a large jackpot, which in turn is fueled by an ever-growing percentage of the total ticket sales. The size of the jackpot is a key selling point on billboards and newscasts.

The amounts of prize pools varies, but on average about 50-60% of the ticket sales go to winners. The rest is divvied up for various administrative costs and for projects each state designates. While the popularity of the lottery is usually correlated to state governments’ actual fiscal conditions, Clotfelter and Cook show that it also depends on how well it is perceived to serve some broad societal good, such as education.