Christian Schneider

Author, Columnist

Santa\’s Got it Right – The Economics of Gifting

We all run into the same problem every year: what to get those special people in our lives for Christmas, or birthdays, or anniversaries, etc… In fact, economics can point us in the right direction.

In economic terms, when one person purchases an item for $100 and gifts it to another that might only value the gift at $50, there is an economic loss of $50 in the transaction. The loss may occur because the recipient already possesses such a gift or simply does not want it. Of course there is some psychological and relationship benefits from giving and receiving gifts, but have we not all received or given gifts in the past that were duds and felt badly afterward? One solution that has crept up on us literally in the past decade are gift cards. These alleviate some of the psychological issues that may arise, but gift cards also provide us with economic loss. Not only do gift cards restrict the recipient to shopping at particular retailers that they may not otherwise patronize, but oftentimes recipients cannot find items they want equal to the value on the gift card and are forced to purchase something beyond the value of the gift card. The final solution may be to simply give cash as a gift. Consumers like options, and cash grants the gift recipient unlimited options. But cash is also considered a thoughtless gift and could cause some relationships to rift.

So how do we really solve the economic problem of gifting? Although Santa Claus is a mythological creature, the tale of how children send their wish lists to Santa every Christmas just might work. If everyone exchanged their wants and desires with their loved ones and received in return exactly what they wanted, there would be no economic loss of gifting. Indeed, the giver would be supremely confident in the gift and the recipient would not feel the need to act happy. Wish lists could solve the problem outright. On the downside, the excitement of surprise would be forever lost…

1 Comment

  1. The economic non-problem of gifting, you mean. As with all voluntary transactions, there are two sides to the story. To imply that the giver receives no gratification from his action is fatuous.

    Jeffery Tucker wrote an article to this effect: http://www.mises.org/freemarket_detail.aspx?control=107

    “So it is with gifts. They generate a net loss, this theory says, unless the recipient would have otherwise purchased, with his own cash, precisely what he unwraps. Of course, this is rarely the case. To provide empirical meat to his theory, Professor Waldfogel interviewed students. The students received an average of $438 in gifts, for which these kids reported they would have paid only $313 if they had done the shopping themselves. The gap narrows when the gift is from a friend, and widens when it’s from the family.

    So, what’s wrong with the theory? Plenty. It equates personal utility with dollars spent, the classic conflation of value and price. In fact, a gift is a special kind of good with its own value. For example, we value the soap from the Aunt precisely because of its tie-in with familial affection. Even if the recipient would never have bought it, his personal utility is enhanced by the knowledge that his extended family is thinking about him and cares enough to give.”

    I couldn’t have said it better myself.

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