In a holiday theme I’m discussing the Deadweight Loss of christmas. The basic idea is that gift-giving destroys value for society.
The Deadweight Loss Of Christmas
When buying for myself I get what I most value with the money. When you buy something for me you don’t know what I want so probably buy something that I don’t want as much. The difference between what I want and what you get me is the Deadweight Loss, an interesting and useful concept.
Joel Waldfogel has a great little book on gift giving from an economic perspective. He examines how gift-giving incurs this deadweight loss. He’d love a world where cash giving was socially acceptable but he accepts cash often has a stigma.
The Gift Is The Permission
Interestingly Waldfogel concedes that “… the idealized gift beats cash” (2013, page 136). By this he means there exist, quite restrictive, circumstances where a gift is better than cash. For example, if the gift gives me “permission”. I really want the Glee boxed set but I am too embarrassed to buy it for myself. The ideal gift also beats cash when the giver knows the recipient better than the recipient does, e.g. a young child’s parents? A gift may also be better when I find something that you really want that you won’t be able to find.
Most Gifts Destroy Value?
Despite seeing benefits Waldfogel is mostly pretty negative about gifting. He assumes that I have preferences for a certain set of things and money is the best way to fulfill these. I’m personally a little more optimistic about giving. I start by assuming that our preferences go beyond the actual things themselves. (I’d say this is the key to understanding many marketing situations.) I’m not really trying to own a thing as such. I’m trying to own the thing for the happiness it brings. This distinction matters.
If your aunt sends you a christmas sweater it probably isn’t what you wanted. If she had sent you $20 you surely would have spent it on something else. That said, maybe the sweater did its job. Everyone had a good laugh — it brought the family together. I’m not saying that this is a better use of the money than giving it to a hungry person. Still, there are many worse ways to spend $20.
For more on gifts see here, and gift cards see here.
Read: Joel Waldfogell (2009) Scroogenomics: Why You Shouldn’t Buy Presents For The Holidays, Princeton University Press