My friend Gerbs, an otherwise kind and generous man, is somewhere between ambivalent and hostile about the gift-giving process. He outsources most of his giving to his wife who undoubtedly does a better job than would he. So I was not surprised when he recommended that I read George Wills’ recent column, “The gift of not giving” that recounts the book Scroogenomics: Why You Shouldn’t Buy Presents for the Holidays by Joel Waldfogel.
Waldfogel, an economist at the University of Pennsylvania’s Wharton school, confirms everyone’s impression of economists as clever but soulless jerks by pointing out that a gift usually provides less value (utility) to the recipient than would whatever else they would purchase at an equal price for themselves. The long lines at the returns desk following Christmas provide ample empirical evidence, if any was needed, that many of us prefer to make our own decisions about what to buy.
Waldfogel estimates that about 18 per cent of the approximately $66 billion of December gift purchases is wasted. He first explained the phenomena in his December 1993 article in the American Economic Review, “The Deadweight Loss of Christmas.” Waldfogel’s argument is familiar to economists who recall the article or as a variation of the loss of welfare attributable to providing in-kind products and services rather than money to the poor – a subject to which he devotes considerable space in his book. My only quibble is that his findings are based on surveys of college students whom he asks to evaluate the value/price ratio of gifts compared to self-purchases. This cohort may be among the least grateful and most self-centered in the population and I suspect that if parents and grandparents were polled, the value ratio might have been higher.
Our culture (and so far as I know almost all others) celebrates giving as a way of expressing affection or respect but we don’t seem to be particularly good at it. Christians recall the curiously age-inappropriate gifts of the Magi to the baby Jesus and perpetuate the custom of mis-giving every Christmas. Our president gives presents on our behalf to foreign leaders; most recently an iPod to Queen Elizabeth who already had one, and a set of DVDs incompatible with British players to Prime Minister Brown. We could have been embarrassed but we understood the problem of picking out something for someone who inherited a whole country and for the man who runs it for her.
The real economic issue here is: why does the practice persist if it destroys economic value and frequently leads to embarrassing results? Waldfogel suggests that our gift giving incentive system is distorted by social conditioning that prevents the principal (child) from fully disciplining the agent (grandma). When Grandma misses all the hints and clues to buy Grand Theft Auto, the child is still (just barely) able to look overjoyed with his new Parcheesi set, thereby pleasing his parents and letting granny off the hook and free to destroy value next year.
My own gift-giving strategy is to assume that my friends like what I like and so my shopping list and wish list are essentially the same. Refreshingly, Gerbs has evolved past value-destroying hypocrisy. His enthusiasm for the George Will article was especially rewarding to me since it coincided with his confession that my most recent birthday gift to him was redundant – he had possessed one for a decade and had never used it. So, he gave it back to me and I love it.
Posted by Bob