Elasticity of Demand and Optimal Prize Distribution for Instant Lottery Games

This study explores the optimal payout structure and prize distribution of instant (scratch-off) lottery games. Using ticket sales data for 185 instant lottery games sold between 2007 and 2011 by the Maryland State Lottery and Gaming Control Agency, we calculate the price elasticity of demand across a range of ticket denominations. Our findings suggest that increasing the payout rate of instant tickets will increase revenue, particularly among low denomination tickets. We also find that reallocating the current prize distributions within a game towards fewer, but more valuable, low-tier prizes will increase the number of tickets sold.