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August 27, 2007

Increasing lottery prizes

Playing the lottery in North Carolina is about to get more lucrative, as the state raises the payout in prizes. But will increasing the rate of winning work against the lottery's goal of raising money for education? N.C. State University's Mike Walden says not necessarily.

"It would … if nothing else changed. But what the state is banking on is that if they increase the degree of prizes -- that is, if they increase the chances of people who play the lottery of winning -- that's going to attract more people to play the lottery, and even though the rate of winning has gone up, because you have expanded the base of players so much that the state will actually end up with more money," says Dr. Walden, a North Carolina Cooperative Extension specialist.

"It's sort of like a business [that] cuts the price of their product. You might say, 'Well, their profit is going to go down.' Well not if by cutting that price they attract more buyers. It's the same thing here," he adds.

"And indeed this is not unusual: If you look at other states that have instituted a lottery, usually there's a lot of hype -- a lot of excitement -- about the lottery when it's first instituted, and then sort of the newness fades out and people have to be lured back into the lottery by the prize rate -- the rate of winning -- going up," he says.

"Now what studies show is that when you do increase the rate of winning, that will attract more people and the state will actually get more money. But that will also fade over time and the state will have to up the rate of winning again later.

"So it's kind of a constant tug-of-war here that the state will have to play in getting people to be interested in the lottery."

Posted by deeshore at August 27, 2007 08:00 AM