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The rationality of giving gifts
It’s not necessarily what is in the box that matters
The season of goodwill and of finding suitable gifts for relatives and friends is upon us once again. It’s also the time of the year when economist Joel Waldfogel’s classic paper (now well over 20 years old), “The deadweight loss of Christmas”, reemerges from its summer sleep. In it he argues that the whole process of gift giving is a massive destruction of value (estimated to be between 10 percent and one third of the cost of the gifts).
Mr Waldfogel’s conclusion is typical for any economic analysis that focuses entirely on the material costs and benefits: all that matters is the price paid by the giver, and the price that the recipient would be prepared to pay for the gift. If the latter is lower than the former, you have a deadweight loss.
In practice, however, gifts may carry a non-monetary significance , and that affects whether the transaction really creates or destroys value. In 2001 The Economist challenged Waldfogel’s thesis on this basis: “by giving a jazz CD, for example, the giver may be encouraging the recipient to enjoy something that was shunned before”. In addition, they say, gifts may be carrying sentimental value.
The importance of the gift
