>The Economics of Gift Giving


Do you hate getting fruitcake, tacky Santa figurines or socks for Christmas? A not-so-recent economics paper by Joel Waldfogel in the American Economic Review analyzes the "deadweight loss of Christmas", all that economic value where the gift you receive is worth far less to you than the giver spent on it. He estimates the total deadweight loss of Christmas (and other gift giving holidays) to be about one tenth of the amount of deadweight loss due to income taxation, and is about 10-30% of the value of all gifts.  He estimates the total holiday deadweight loss for 1992 at between $5.8 billion and $19 billion (dollars inflated to 2007).

This paper really is a gem.  If you liked reading "Freakonomics" or any of the other "Pop Economics" books that are out there now, you will like this paper.

Some of the interesting conclusions:

  • On average, friends (98%) do "better" than significant others (92%) at picking gifts.
  • Aunts and Uncles typically suck at giving non-cash gifts.  On average, gifts received from Aunts/Uncles are only worth 65% of their cash price, and get regifted or exchanged at double the average rate.
  • Grandparents give cash or gift cards.  They’re more than four times as likely than average to do so.  Which is great, because the average noncash gift received from a grandparent is only worth 63% of its retail price to the recipient.
  • The closer the giver is to the recipient, the more efficient the gift.  Parents are actually more efficient than friends after adjusting for this effect.
  • Givers generally know when they don’t usually choose efficient gifts, and opt for giving cash instead to compensate.

This analysis ignores the possibility that the gift you received is actually worth more to you than it cost the recipient, due to sentimental value (survey participants were told to ignore that), an inability of the recipient to purchase the article at any price (such as handmade or personalized art, as given by children to their parents), and the value to a recipient of receiving something they love but didn’t know existed.  It also only surveyed college students, so unfortunately there are no data for gifts from children to parents. 

For me, sometimes the value of a gift is that I don’t have to pick it out.  I had been wanting a digital photo frame for about a year, but every time I got online I spent about an hour looking at all the options just to give up in a bout of extreme indecision (this happens a lot to me).  Last Christmas, I got a digital photo frame as a surprise from my mom.  It may not have been the one I would eventually have gotten, but I was so happy to get it because that meant I could have one without ever having to try to figure out which one I wanted, which was starting to waste a lot of my time.  I have it in my office and it’s great!  Thanks, Mom.

Hat tip to the Freakonomics Calendar, which my wife got me last year. 


About perkinsms

I'm an engineer and father interested in transit, parking and economics.
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2 Responses to >The Economics of Gift Giving

  1. Mark says:

    >”The closer the giver is to the recipient, the more efficient the gift. “”Hat tip to the Freakonomics Calendar, which my wife got me last year.”I appreciate the internal consistancy and thematic harmony of this post.

  2. LB says:

    >All of this seems quite intuitive but it’s nice to see that someone put the effort into quantifying it. You must admit it’s a bit awkward to be taking the issue head-on. Brutal honesty at its best.

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