If you’re buying an economist a gift this Christmas … don’t.
Or at least don’t before examining why you maybe shouldn’t – because economists reckons what you spend on gifts is generally valued much less that what you paid for them.
A 1993 paper, “The Deadweight Loss of Christmas,” gave the notion its first real academic ballast. The author, Joel Waldfogel, then at Yale University, calculated yuletide waste by asking 86 students to estimate the cost of presents they received. Average answer: $438.
He asked how much they would have been willing to pay for the same gifts. Average answer: $313. Recipients valued gifts at 71.5 cents on the dollar, a significant economic inefficiency.
Gifts, Mr. Waldfogel wrote, “leave the recipient worse off than if she had made her own consumption choice with an equal amount of cash.” …
“The efficiency loss of Christmas presents,” they concluded, “is highest for gifts from grandparents.”
Take that, grandparents! (Although some researchers reckon girlfriends rate as fair;ly useless too.)
[And] a 2009 ‘Journal of Socio-Economics’ paper measured gifts across the holiday catalogue, from books (which recipients valued at 74% of the amount spent) to footwear (92%) and kitchen gadgets (77%).
“We find no evidence of significant welfare gains in any gift category,” the paper concluded, calling gifts a “considerable market failure.”
Don’t worry. There is hope.
Anyone who has studied microeconomics knows... that an income transfer, as opposed to a gift in-kind, gets you to a higher level of utility," but as WSJ reports, putting theory under the tree is another matter. After years of studying the economics of gift-giving, economists have found that some gifts are valued more highly than others, and that some gift-givers seem to be better than others...
Turns out that pets suck, but jewellery rocks. So, this Christmas, buy your favourite economist some bling. Or send them on a long trip …
[Hat tip Zero Hedge]