Friday, July 1, 2011

Lottery Winners

Winning a $10,000 lottery doesn't change the chance individuals declare bankruptcy.  Winning between $50,000 and $150,000 only forestalls it.  This from Hankins, Hoekstra, and Skiba (Review of Economics and Statistics, Forthcoming: "The Ticket to Easy Street? The Financial Consequences of Winning the Lottery").

Below, they produce the relative probability that an individual declares bankruptcy before and after winning the lottery in two different amounts (click to enlarge).  The probability doesn't change for individuals winning less than $10,000.  The probability dips for two years after winning more than $50,000, but the next three years make up for that deficit.
Remarkably clever paper. 

Rule of thumb: cash transfers to the poor do nothing in the long run.

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