BAN PRESENTS. GIVE MONEY INSTEAD

Scroogenomics

Give gold, not myrrh

Dec 21st 2009
From Economist.com

DECEMBER dismays Joel Waldfogel, an economist at the University of Pennsylvania’s Wharton School and the author of a new book called “Scroogenomics”. Mr Waldfogel objects to the ritualised frenzy of shopping for gifts that precedes the enormous meals and awkward family reunions that are the other hallmarks of Christmas in the Western world.
Such complaints are hardly new. Harriet Beecher Stowe, an American abolitionist, grumbled in 1850 about “worlds of money wasted, at this time of year, in getting things that nobody wants and nobody cares for after they are got”. But unlike most criticisms of festive wastefulness, Mr Waldfogel’s objections are based on economic theory rather than morality or taste. When people buy something for themselves, they believe that their purchase is worth at least the price paid. But most gift-givers are only dimly aware of the desires and tastes of the beneficiaries of their largesse. As a result, they often give people presents that are worth far less to the person getting them than the gift-giver paid for them.

Presents? Humbug!

The result of all these inappropriate presents—ranging from the sweaters that people will never wear to games they will never play—is what Mr Waldfogel calls a “deadweight loss” from Yuletide generosity. This is the difference between the satisfaction a person gets when she spends a dollar on herself and when a well-meaning benefactor spends that dollar on a present for her. Over a period of time, a series of surveys have led him to conclude that the average deadweight loss from gift-giving is around 18%. Given his estimate that Americans spent $66 billion on Christmas presents in 2007, this amounts to a whopping $12 billion of lost value. Where others see generosity, Mr Waldfogel sees an orgy of value destruction.
Of course, not all presents are such bad value for money. What matters is how good people are at anticipating what others want. People who are in close contact with recipients usually do a very good job when it comes to choosing presents. Gifts from siblings, Mr Waldfogel’s research has found, create only a tiny deadweight loss, creating $0.99 in satisfaction for every dollar spent. Partners are excellent gift-givers; parents, reassuringly, do better than average. Unfortunately, aunts and uncles (like others who are only in occasional contact with the beneficiaries of their festive largesse) tend to give gifts that create only about 75-86 cents in satisfaction per dollar spent.
So what should people, especially those obliged to bestow holiday gifts on those whose tastes they do not know well, do? Since the best a gift-giver can do is give the recipient exactly what he wants, economic theory has a simple solution: give cold, hard cash. However, social norms make it a bit awkward to give money to all but a small subset of (usually much younger) relations in most societies.
But there may yet be hope. Gift vouchers are close to cash in that they leave the choice of exactly what to buy in the hands of the recipient, and have increased in popularity in recent years. Unfortunately (except for the retailer), human forgetfulness and the propensity to procrastinate mean that about 10% of such vouchers are never actually redeemed.
So is there no escape from the wanton wastefulness of Christmas spending? Mr Waldfogel offers a proposal of his own—gift vouchers that are designed to expire after a set period of time, with unused balances going to a charity of the giver’s choice. People would give more to charity if they could afford to and it were made easier, he argues. His proposal also chimes well with the spirit of Christmas. Whether Scrooge would have approved of it is less clear.