Dec

20

The Season for Deadweight Lossing

December 20, 2006 | 2 Comments | Joshua Gans

In Slate, Joel Waldfogel writes more about his research into gift giving; namely, just how bad it is. Specifically, using large surveys, he has consistently demonstrated that a dollar spent own ourselves gives more satisfaction than the satisfaction that dollar would bestow if spent on another.

On average, a dollar that people spend for themselves creates nearly 20 percent more satisfaction than a dollar that someone else spends on them. Put another—depressing—way, gift-giving effectively discards 20 percent of the gift’s price. So, of the nearly $100 billion spent on holiday gifts each year, one-fifth is effectively flushed down the toilet.

This is a textbook definition of a deadweight loss; a term economists use for trades where the recipient values something less than the giver. In more recent research Waldfogel finds that this loss is only about 10 percent for gifts to people you interact with daily. But what that means is that for everyone else, the losses are even greater!

So what should you do? One option is to refrain from all gift giving which is my option. Another is to go for gift certificates or cold hard cash. The good news according to Waldfogel is that there is no loss from these exchanges; well, apart from postage and the like. In that respect you can literally make the thought count for its full value.

[Update: The Economist gets on this bandwagon.]


Comments

2 Responses to “The Season for Deadweight Lossing”

  1. Tanya on December 20th, 2006 10:15 am

    “So what should you do?’

    Grumble, grumble, sigh … One should take the time to read the anthropological and sociological literature on gift giving. There are capitals other than the financial and there are time frames other than the immediate.

  2. Tony Hughes on December 22nd, 2006 9:00 am

    Bridal registries also get around this problem. Perhaps we should institute Christmas and birthday registries as well? This may defeat the point of giving the gift in the first place (the element of surprise and all that) but surely those arguments apply to wedding gifts just as much as to Christmas gifts?

    Vouchers and bridal registries are like giving cash only you the giver gets tied to specific commercial entities.

    Let’s face it, therefore, cash is the ultimate gift.

    Conversely if the sociologist is right we should all be giving personally made macrame spice holders and giving each other foot massages and the like. Giving me a Tickle-me-Elmo doesn’t buy much social capital.