Thursday, December 23, 2004

Does re-sorting reduce the deadweight loss of Christmas? 

John Palmer has some great thoughts on re-gifting. There is a fairly well-known article by Joel Waldfogel in the American Economic Review that showed that giving Christmas gifts destroys 13-18% the cost of purchasing the gift (that is, the value to the recipient is about 13-18% lower than the price the giver paid.) John explains this here, and there's an older Economist article with the same thought. An article in from India has a very different take, citing other pieces that consider show an increase in welfare from giving. Waldfogel continues to argue his case using newer surveys.

Waldfogel also found that the gap between price and value to recipient is much greater between family members than between friends. In John's piece one of his correspondents refer to this as peer-relationship gifting, which is done with a "grim resolve". I had this happen the other day as I was trying to buy gifts for my nieces and nephew. All live back in my hometown in New Hampshire, and I see them no more than once a year. How to not destroy value? I confess that this is the year I broke down and bought a couple of gift certificates when I did not have the info enough to select something specifically. On the other hand, a friend and I who love Susan Tedeschi led to a gift of the new Austin City Limits show recording -- I was the giver, and it was more fun to watch him find a CD he didn't know about than anything else.

As my son's godfather always says, cash offends no one. And the proliferation of those gift cards that beckoned to me at Best Buy earlier today indicates that many people use them. But I think John has the last and best point:
I can remain civil and pleasant to someone who gives me a fruitcake (especially if I'm able to "regift" it), but if I receive something that adds to my utility, I'm pleased, especially if it is something for which (unlike Justin) I wouldn't have wanted to spend the money but which I am delighted to receive (e.g. an expensive bottle of bourbon). Furthermore, even though I know and teach the indifference curve analysis about how giving cash is better than giving subsidies in-kind, I still want some people to know how much I care for them, and I can signal that by, as Nicholas indicates, showing that I care enough to select something that will add a lot to their utility.
Bourbon is always welcomed here, btw.