The Own and Social Effects of an Unexpected Income Shock: Evidence from the Dutch Postcode Lottery

58 Pages Posted: 31 May 2008

See all articles by Peter Kuhn

Peter Kuhn

University of California, Santa Barbara (UCSB) - Department of Economics; IZA Institute of Labor Economics; National Bureau of Economic Research (NBER)

Peter Kooreman

Tilburg University - Center and Faculty of Economics and Business Administration; IZA Institute of Labor Economics

Adriaan R. Soetevent

University of Groningen; Tinbergen Institute

Arie Kapteyn

Dornsife Center for Economic and Social Research - University of Southern California; IZA Institute of Labor Economics

Multiple version iconThere are 2 versions of this paper

Date Written: May 2008

Abstract

In the Dutch Postcode Lottery a postal code (19 households on average) is randomly selected weekly, and prizes - consisting of cash and a new BMW - are awarded to lottery participants living in that postal code. On average, this generates a temporary, unexpected income shock equal to about eight months of income for about one third of the households in a typical winning code, while leaving the incomes of nonwinning, neighboring households unaffected. The authors study the responses of consumption and reported happiness of both winners and nonwinners to these shocks. Consistent with simple models of in-kind transfers, the overwhelming majority of households who won a BMW convert it into cash. With the exception of food away from home, the only 'own' effects of cash winnings they detect are on durables expenditures and car consumption; these results support a version of the permanent income hypothesis in which durable spending is used to smooth consumption. They detect social effects of neighbors' winnings on two types of consumption: cars and exterior home renovations. Six months after the fact, winning the lottery does not make households happier, nor do neighbors' winnings reduce happiness.

Keywords: social interactions, quasi-experiments

JEL Classification: D12, C21

Suggested Citation

Kuhn, Peter J. and Kooreman, Peter and Soetevent, Adriaan R. and Kapteyn, Arie, The Own and Social Effects of an Unexpected Income Shock: Evidence from the Dutch Postcode Lottery (May 2008). RAND Working Paper No. WR-574. Available at SSRN: https://ssrn.com/abstract=1139162 or http://dx.doi.org/10.2139/ssrn.1139162

Peter J. Kuhn (Contact Author)

University of California, Santa Barbara (UCSB) - Department of Economics ( email )

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Santa Barbara, CA 93106
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IZA Institute of Labor Economics

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National Bureau of Economic Research (NBER)

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Peter Kooreman

Tilburg University - Center and Faculty of Economics and Business Administration ( email )

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Tilburg, 5000 LE
Netherlands

HOME PAGE: http://www.peterkooreman.nl

IZA Institute of Labor Economics

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Germany

Adriaan R. Soetevent

University of Groningen ( email )

P.O. Box 800
9700 AV Groningen
Netherlands
++ 31 50 363 7018 (Phone)

HOME PAGE: http://www.soetevent.com

Tinbergen Institute

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Arie Kapteyn

Dornsife Center for Economic and Social Research - University of Southern California ( email )

635 Downey Way
Los Angeles, CA 90089-3332
United States
310-448-5383 (Phone)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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