The Own and Social Effects of an Unexpected Income Shock

Peter Kuhn, Peter Kooreman, Adriaan Soetevent and Arie Kapteyn
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Peter Kooreman: Tilburg University

No 08-048/1, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: Each week, the Dutch Postcode Lottery (PCL) randomly selects a postal code, and distributes cash and a new BMWto lottery participants in that code. We study the effects of these shocks on lottery winners and their neighbors.Consistent with the life-cycle hypothesis, the effects on winners’ consumption are largely confined to cars and otherdurables. Consistent with the theory of in-kind transfers, the vast majority of BMW winners liquidate their BMWs.We do, however, detect substantial social effects of lottery winnings: PCL nonparticipants who live next door towinners have significantly higher levels of car consumption than other nonparticipants.

Keywords: social interactions; natural experiments (search for similar items in EconPapers)
JEL-codes: C21 D12 (search for similar items in EconPapers)
Date: 2008-05-15, Revised 2010-05-05
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