The Effects of Lottery Prizes on Winners and Their Neighbors: Evidence from the Dutch Postcode Lottery

Abstract

Each week, the Dutch Postcode Lottery (PCL) randomly selects a postal code, and distributes cash and a new BMW to 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 other durables. 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 to winners have significantly higher levels of car consumption than other nonparticipants. JEL: D14, D91, H23, H27

Conspicuous consumption and satisfaction

“…A well known study along this line is Neumark and Postlewaite (1998) who show that a woman's employment probability increases if the sister's husband's income is greater than the own husband's income. More recently, Kuhn et al (2011) show that living next to a winner in the Dutch Postcode Lottery increases the level of own car consumption. Even if an externality 6 leaves the marginal rate of substitution between conspicuous and non-conspicuous goods unchanged, other margins can be affected, for example, those related to residential choice.…”

“Relative concerns for consumption at the top”: An intertemporal analysis for the UK

“…A growing body of empirical literature provides evidence for the importance of relative concerns in consumption choices (Kuhn et al, 2011;De Giorgi et al, 2012;Lewbel et al, 2013). Models of relative concerns usually assume that utility depends both on own consumption and on how own consumption compares to the average consumption among all others in a consumer's reference group.…”

Wealth effects on job preferences

“…Windfall gains are used in other contexts (e.g. Imbens et al (2001) and Kuhn et al (2011) use US and Dutch lottery data). The impact of windfalls on the quantity of labour supply is studied by Henley (2004).…”