Optimal Lottery Design For Public Financing

Akira Maeda

Economic Journal, 2008, vol. 118, issue 532, pages 1698-1718

Abstract: This article develops a model of optimal lottery design for public financing, on the assumption that economic agents view buying lottery tickets as a form of entertainment. Given that lotteries are optimally designed, it offers two findings: (1) the fundraising potential of a lottery is independent of its type (specifically, of whether it is a fixed-prize type or a pari mutuel); and (2) the ratio of the optimal winning prize amount in each prize class to total lottery sales is equalised to the elasticity of demand for lottery ticket purchases with respect to the winning prize in each prize class. Copyright © The Author(s). Journal compilation © Royal Economic Society 2008.

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