A Cost-Benefit Analysis of the Lottery


The casting of lots to make decisions and determine fates has a long history, including several instances in the Bible. The modern lottery, in which payment of money for a chance to win a prize, has a much shorter history, although it is now used in almost all states. Despite the difference in length of history, the arguments for and against lottery adoption, the structure of state lotteries, and the evolution of their operations all have followed remarkably similar patterns.

A state lottery is a government-sponsored gambling operation that sells tickets to a public pool in order to distribute prizes. The prize money can be a lump sum of cash or annuity payments, which are taxed annually at different rates. The amount of the prize money is determined by the number of tickets sold and the percentage of total ticket sales returned to players in prizes. A lottery can be a powerful tool for increasing revenues for a public purpose, but it can also contribute to problem gambling and adverse social effects.

The lottery promotes itself as a source of “painless” revenue, and politicians regard it as a way to get more spending by the general public without paying taxes. But a cost-benefit analysis should focus on more than just assessing the effects of the lottery for its players; it should consider the effect on poor people, problem gamblers, and the economy as a whole. And it should examine whether promoting gambling is an appropriate function for the state to assume.