Sunday, December 19, 2010

Do they (i.e. economists) know its Christmas?

Its the season of goodwill. People are looking forward to a bit of a break over Christmas after a fairly depressing year and with a pretty uncertain outlook for the New Year. Time then to revisit Joel Waldfogel's piece on the Deadweight Loss of Christmas.
For those not familiar with it, the basic idea is the following. When you buy something for yourself, say a €20 book, it must be worth at least that much to you. But if you buy a €20 book for someone else there is no guarantee they value it that highly (after all, why else have they not bought it already). Hence Christmas presents generate a deadweight loss. Using survey data on Yale undergraduates he estimates that Christmas gifts waste between 10% and about 33% of the value of gifts.
A compelling argument clearly, although there are obvious exceptions: this argument should not put you off sending me expensive presents. And you can avoid any deadweight loss by just sending me cash.

3 comments:

Rick said...

Colin Camerer wrote a paper on gifts as economic signals (http://www.jstor.org/stable/2780246), where he addresses the deadweight aspect of gifts.

Liam Delaney said...

keep telling you Kevin, you wont be happier if people send you cash. If anything, it might make you feel guilty or trigger paranoia or some reciprocity norm.

Kevin Denny said...

No no Liam, research shows that I have a rare mutation on the GReeDy gene that has left me with a pathologically high marginal utility of income while an even rarer methylation pattern on the ShameLESS gene condemns me to feeling no remorse whatsoever. Cash or cheques only.