Wednesday, December 02, 2009

Cash offends some people 

I have an old friend from my grad school days who once said of giving gifts, "cash offends no one." He, like me, was trained as an economist and to us it seemed obvious. And Mrs. S and I are more often than not likely to send gift cards or checks to my family out East for the holidays. Costs less to send, and you can use it everywhere. Cash offends no one.

But many readers will say "no, not always." You can't give cash to a romantic interest; they won't gasp with delight when they open the pretty box and see a check inside. Even my parents seem to remember and like more when I send something other than cash, even when we know that gifts destroy value.

Bryan Caplan argues that our understanding of people is improved when they are better at being selfish. In the formal rules that economists think apply to being "saintly selfish" Caplan includes not putting someone else's satisfaction directly as a factor in one's own. Yet doesn't that seem to be the gift problem in small: I only really worry about buying gifts for those closest to me; a niece or nephew almost always gets the gift card, but never the spouse? Why, if not because her happiness directly infuences mine? "If Mama ain't happy, ain't nobody happy."

I suspect that interdependent-utility-functions condition is the one we find least realistic. Turns out, unfortunately, you can't prove many of the welfare-maximizing properties of competitive markets if you relax the assumption of independent utility.

Labels: , ,