Wednesday, December 25, 2019

Conflicting opinions from economists on the value of giving gifts

The battle seems to be over inefficiency (spending money on items others might not want) vs. the idea that if you spent money on someone it is a believable signal that they care about you or having a relationship with you.

See Holiday shopping? Consider the most economically efficient gift of all: cash, and avoid the deadweight loss of Christmas by Mark J. Perry. Excerpt:

"2. In a 1993 American Economic Review article “The Deadweight Loss of Christmas,” Yale economist Joel Waldfogel concluded that holiday gift-giving destroys a significant portion of the retail value of the gifts given. Reason? The best outcome that gift-givers can achieve is to duplicate the choices that the gift-recipient would have made on his or her own with the cash-equivalent of the gift. In reality, it’s highly certain that many gifts given will not perfectly match the recipient’s own personal tastes and preferences, or it might be the wrong size, color, or style.  

In those cases, the recipient will be worse off with the sub-optimal gift selected by the gift-giver than if the recipient was given cash and allowed to choose his or her own gift. Because many Christmas/holiday gifts are mismatched with the preferences of the recipients, Waldfogel concludes that holiday gift-giving generates a significant economic “deadweight loss” of between one-tenth and one-third of the retail value of the gifts purchased."

See Gift Giving Is Better for Society than Economists Think by Michael Thomas Tony and Anthony Gill. Excerpt:
"A newcomer often is welcomed into a household with a large feast containing more food than can be reasonably consumed. Engagement and wedding rings are expensive signals of a prospective spouse’s fidelity in good times and bad. Clubs, fraternities, and religious organizations often require individuals to go through rigorous rituals to prove their loyalty before gaining the benefits that full membership entails.

So it is with gift giving for holidays and other occasions. Giving gifts, even ones filled with the deadweight loss of mismatched preferences, indicates that one is willing to forego resources in the present in order to maintain a relationship in the future. When times get tough for you, I will assure you that I will be there to sacrifice again. Knowing that I am willing to sacrifice for you makes you more willing to want to continue engaging with me. Your reciprocal sacrifice helps solidify the mutual trust to make a relationship work effectively.

Societies around the world have ritualized these times of “burnt offerings” as a way of communicating trust and a desire to enter into, or remain in, a social network. We learn to gift within our families in the hope that such generosity will translate itself in the broader society.

Gifting: The Gift that Keeps on Giving

Prof. Waldfogel and other economists who rue the inefficiency of holiday gift giving only see the costs and benefits in static terms. The real benefits are dynamic and embedded in the deadweight losses, ironically. By continually showing, through gifts small and large, our willingness to sacrifice for one another we build a cultural fabric of trust and willingness to assist in times of need. Norms of sacrifice, trust, and graciousness are crucial for the functioning of broad-based markets over long periods of time. Our willingness to give and to reciprocate graciously when receiving is what makes us wealthier over time."
Related posts:

Is Christmas Gift Giving Inefficient?

Are Homemade Gifts Better Or More Special?

What Melvin Anthropologist Konner Fails To See When He Criticizes Economists And Their Views On Gift Giving 

 - Dilbert by Scott Adams

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