Privatizing the Lottery - and other Things
Assume state run lotteries. (We do have them after all, so it is not as if we need always start from first principles. If there were a good reason to prefer the privatization of Illinois's or another state's lottery, then of course we should proceed even if the first-best world had been one with no state-sponsored lottery. Besides, there are some good arguments for a lottery, and indeed for one that does not have a thin profit margin. Even a good libertarian could say that inasmuch as the government is not coercing persons to play the lottery, and there are many private alternatives for gamblers, a state lottery is not the worst of all evils. Some people might actually like playing it, and that must count for something, just as some small investors seem to like paying for stock market advice.)
Still, I have an objection to the proposed sale of the Illinois lottery. The objection carries over to other privatizations, though not to all. The concern is with locking in a public policy in a way that binds future electorates and generations. Such lock-ins seem ill-advised when there is low net gain and when it is likely that different generations have disparate preferences. A government that sells the future income stream from a lottery will likely maximize the current sales price or revenue by promising not to devalue the asset it sells after the privatization takes place. Illinois will look for more upfront cash, and therefore it will promise not to make the lottery illegal (or to compensate if it does so). It can be counted on to keep these promises for reputational or legal reasons. In this way, a sale of the lottery limits the ability of future, elected governmnts to do away with the lottery. The objection, then, is that revenue maximizing privatization locks in policies more than might be optimal.
The lock-in would be modest if Illinois could be as reliable in leaving the appropriate share of the sale proceeds for future governments to spend. This is not simply because of intergenerational equity (don't spend it all on those lucky enough to be around when the one-time sale takes place). It is because the saving of proceeds leaves money to compensate the private buyer in the event that future electorates decide they would prefer to do away with the lottery, or a monopoly lottery.
Even if we have no single theory as to when the government should own an asset, create a monopoly, or enter an industry, and even if we do not agree on optimal rules for legal transitions (which is to say retroactivity rules and the like), it seems unlikely that we want a government to lock in future governments to one particular answer to these questions. Strange as it sounds, privatization should probably be reversible, especially when there is grave doubt as to whether the government should have been in the business in the first place.