THE LOTTO AND EXPECTED NET REVENUE

Would a state's net revenues be enhanced by changing the percentage of gross revenues allocated to the grand prize of a lotto? To answer this question I construct a multiperiod model of lotto sales. Using data from the Florida Lotto, I estimate the parameters for a lotto revenue equation and for a limiteddependent-variable equation to estimate the probability that the grand prize will roll over. Including the latter equation is a significant improvement over models by other authors because by recognizing that lotto players overselect certain integer combination selections, it provides for an unbiased estimate of expected net revenues. A further improvement over models by other authors is the multiperiod aspect of the model. The finding is that expected net revenues will be increased by allocating a greater percentage of sales to the grand prize.