Lottery Regulation and Public Policy


The lottery is a form of gambling in which people buy tickets for a chance to win money, often in the millions of dollars. It is usually run by a state government or the federal government. The winner is selected through a random drawing of numbers.

Lottery history stretches back to ancient times, but the first public lotteries were established in Europe during the 15th century and early 16th centuries to raise funds for town fortifications and for helping poor citizens. A record dated 9 May 1445 in L’Ecluse, France, lists the first public lottery with prize money of 1737 florins (about US$170,000 in 2014).

As they have evolved to become the modern-day forms of legal gambling, lotteries have developed their own particular characteristics that have driven debate and criticism, both of them reflecting and driving the ongoing evolution of the industry. Initially, the principal argument used to promote lottery adoption was its value as a source of “painless” revenue: players voluntarily spending their own money, in effect “paying” taxes for the benefit of society.

Despite this broad appeal, a number of serious problems have emerged with the lottery industry. These include compulsive gambling, alleged regressive impact on lower-income groups, and a variety of other issues related to the management of gambling.

One of the main issues is how to regulate the lottery to maximize public welfare and minimize negative effects of gambling. This issue is particularly important in an anti-tax era. Many states are reliant on lottery revenues, and pressures are always present to increase the amount of money that is collected.

Although many states do not have a single unified “lottery policy,” there are common features that are evident across the spectrum of state policies. These are a dependence on revenues, and an absence of coherent public policy regarding the management of the industry, and of any general principles that govern it.

There is no general consensus among economists about the optimal strategy for regulating the lottery to maximize public welfare. Some, however, argue that it is best to have a system of “revenue-sharing” between the state and its citizens, where a portion of lottery revenues is paid to each citizen as part of a regular tax bill, a situation that is favored by the majority of voters and which many state politicians find attractive.

Moreover, there are no universal standards to determine the amount of state or federal lottery funds that can be set aside for education or other social programs. In fact, many states have set limits on how much can be spent on lottery-related activities or programs, and these restrictions are frequently contested by the public.

The lottery industry also has a high degree of volatility, as the winning prize amounts fluctuate greatly from year to year. This volatility is exacerbated by the constant introduction of new games, such as instant-win scratch-off tickets and daily draw games. This has led to the emergence of a “boredom” factor, in which revenues increase after the lottery is introduced but then level off or decline as the popularity of the lottery diminishes and new games are introduced to maintain or increase revenue.