Lotteries As a Mean of Financing Public Goods

Daniil Shvets (Queen Mary University of London)

Abstract: The aim of this paper is to introduce the models of financing public goods via lotteries free from disadvantages of the existing ones. The John Morgan’s model (2000) implies that the welfare function of each member of population is widely known. According to his model, the social optimum of providing public good is unreachable and that fixed-prize lotteries completely crowd out voluntary donations. In this paper the assumption of the publicly available information about welfare functions is eliminated. Moreover, the survey conducted rejects the idea of crowding out voluntary donations by lotteries, whereupon the concept of moral utility (altruism) is implemented into the model. The idea of socially optimal level of providing public goods is also reinterpreted, which leads to its’ attainability. The model of Franke and Leininger (2013) presumes that it is possible to set individual ticket prices for each member of society, which is quite improbable. In this paper it is also shown that advertisement of lotteries has positive effect on providing public goods, while lottery taxation has a negative one. Therewith the model of additional issue of lottery tickets with buyback, which may help to reach the social optimum in its classical meaning, is introduced. Keywords: lottery, public goods, free-rider problem, social optimum, moral utility, lottery taxation Jel: C72, D61, D64.

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