UNDERPRICING IN PUBLIC LOTTERIES: A CRITIQUE OF USER‐PAY AND ALL‐PAY TARIFFS

David Scrogin

Economic Inquiry, 2009, vol. 47, issue 3, 500-511

Abstract: A body of literature spanning from medical ethics to public economics has amassed regarding the rationing of underpriced public resources. This study investigates the effects of price on entry, individual and aggregate expected consumer surplus, and tax revenues in user‐pay and all‐pay (AP) lotteries. Comparative statics indicate that expected surplus may increase (decrease) as price increases (decreases) if entry is sufficiently responsive though entry in AP lotteries is inelastic at all prices. Further, the lotteries are shown to be outcome equivalent under revenue equivalency. Selected results are evaluated numerically with simulations performed across a broad class of distributions describing individual private values. (JEL D45, D61, H42)

Date: 2009
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