A let­ter to Tim Har­ford (The Under­cover Econ­o­mist) asks, What’s the best Christ­mas present?

Your let­ter obliges me to dis­in­ter the influ­en­tial research of the econ­o­mist Joel Wald­fo­gel on the “dead­weight loss of Christ­mas”. Fif­teen years ago, Wald­fo­gel pub­lished an aca­d­e­mic arti­cle demon­strat­ing that the recip­i­ents of gifts would not gen­er­ally have been will­ing to pay what it cost to pro­vide the gift. A £30 sweater was val­ued at £20, for exam­ple, cre­at­ing a “dead­weight loss” of £10. Sib­lings were not the most incom­pe­tent givers – that hon­our goes to aunts and uncles – but they were not espe­cially com­pe­tent either.

Waldfogel’s work is often mis­in­ter­preted as sug­gest­ing that gift-giving is point­less. That is not true. He explic­itly excluded the sen­ti­men­tal value of gifts from his cal­cu­la­tions, and, of course, the sen­ti­men­tal value is part of the pur­pose of giv­ing presents. That may explain why the econ­o­mists Sara Sol­nick and David Hemen­way have dis­cov­ered that we pre­fer unso­licited presents to those we have specif­i­cally requested. It may also explain why gift vouch­ers are a bad idea: they have no sen­ti­men­tal value but still cre­ate dead­weight loss, since many expire with­out being used, or are sold at a loss on eBay – as the econ­o­mist Jen­nifer Pate Offen­berg has documented.

All this points to the opti­mal gift-giving strat­egy: you need to min­imise the dead­weight loss while max­imis­ing the sen­ti­men­tal value. This sug­gests buy­ing small gifts and striv­ing for emo­tional res­o­nance. Look for some­thing inex­pen­sive, and con­sider sup­ple­ment­ing it with a let­ter, a photo, or time spent together.

If you feel a finan­cial trans­fer is nec­es­sary, slip a cheque into the enve­lope too.

For a more in-depth look at Waldfogel’s research—and the impli­ca­tions thereof—The Econ­o­mist takes up the slack.

If the results are gen­er­alised, a waste of one dol­lar in ten rep­re­sents a huge aggre­gate loss to soci­ety. It sug­gests that in Amer­ica, where givers spend $40 bil­lion on Christ­mas gifts, $4 bil­lion is being lost annu­ally in the process of gift-giving. Add in birth­days, wed­dings and non-Christian occa­sions, and the fig­ure would bal­loon. So should econ­o­mists advo­cate an end to gift-giving, or at least press for money to become the gift of choice?