Considering the Illinois governor's plan to “privatize” the state lottery by selling off the monopoly right to run the lottery, business columnist David Nicklaus of the St. Louis Post-Dispatch asks precisely the right questions:

Why is the state in the gambling business in the first place?

For that matter, why should each state's lottery be a monopoly? Wouldn't the state's lottery players, at least, be better off if several companies were allowed to compete for their business?

And he notes:

The state doesn't run its own casinos; a scheme of licensing, regulation and taxation works fine. Similarly, Illinois regulates and taxes cigarettes and liquor but doesn't sell them directly. Ultimately, states run lotteries for the same reason Willie Sutton robbed banks: It's where the money is.

The money will still be there to be taxed, Nicklaus is pointing out, if there are competing private lotteries. What he should also have noted is that the goal of making Illinois lottery players better off (i.e. increasing the payback percentage above its current 56 percent) is antithetical to the goal of deriving revenue from taxing the lotteries. Let's suppose that an untaxed, competitive, and efficiently run lottery would pay back 95 percent (that's about what casino slot machines pay). The state's tax revenue can only come from reducing the payback percentage below 95 percent.

Suppose Illinois would agree to move to competing private lotteries only if the tax on those lotteries would yield the state as much as its current monopoly lottery operation. With a tax wedge that large, competing lotteries can give lottery players better returns (above 56 percent payback) only to the extent that the current state administration of the lottery consumes more resources than competing private firms would, plus the extent that private firms would sell more lottery tickets than the state monopoly does (at any given payback rate). There are probably gains to be made in both places, but I’d expect them to be relatively modest.