State lotteries as duopoly transfer mechanisms

The Geography, Economics, and Politics of Lottery Adoption

“…A second framework, Martin and Yandle's (1990) duopoly transfer mechanism approach, views the state government as a rent-seeker and a redistributive agent. Lotteries compete with both legal and illegal gambling operations.…”

“…One answer is that the revenues for the state from a state-run lottery are likely to exceed the revenues that the state would generate from allowing private firms to enter the lottery market and then taxing the profits of these firms. In Martin and Yandle's (1990) approach, the state achieves equilibrium with the illegal operators. Moreover, lotteries provide a way for higher-income voters to redistribute the tax burden associated with state spending from themselves to lower-income groups.…”

“…Filer, Moak, and Uze (1988), Martin and Yandle (1990), and Davis, Filer, and Moak (1992) address the question of whether a state has a lottery as of a specific year. Filer, Moak, and Uze (1988) and Davis, Filer, and Moak (1992) estimate binary choice probit models, while Martin and Yandle (1990) use ordinary least squares. These studies identify and then examine statistically a number of variables that are related to whether a state has a lottery as of a specific year.…”

“…19 See Davis et al (1992), Martin and Yandle (1990), Berry (1990), Caudill et al (1995), Mixon et al (1997), Erekson et al (1999), and Glickman and Painter (2004). 20 There is some evidence that high jackpot lottery games, such as PowerBall, may be less regressive than lower jackpot games.…”

“…22 Martin and Yandle (1990) stress this redistributive feature by arguing that lotteries are a mechanism for higherincome voters to redistribute tax burdens in their favor. Thus, states with higher per capita incomes are more likely to have lotteries.…”