The Inefficiency of Christmas Gifts

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 Pâté 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?

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