Why economists hate gifts

Economics teaches us the law of diminishing marginal returns. As we have more of a specific good, our marginal value for each additional unit of the good decreases.

Same goes for money. Thus no matter what gift we give to a rich friend or a relative, he will always value it lower than the original price. Thus rather than giving materialistic gifts, Waldfogel suggests altruistic gifts like a charity card.

A market of charity pledge cards is fast catching steam where the issuer is liable to donate a certain amount to the charity of your choice. One could argue that charity donations also are subject to diminishing returns, but since charitable organizations generally produce multifold results for each dollar donated, it is the most efficient gift.

In most cases, I do agree with Joel Walfogel and his rationale on selecting the most optimum gift for your recipients. I have the following concerns - 1. He discounts the sentimental value created for the giver and the recipient. A poor gift could also be a great source of memory. A gift could lead to high transactional efficiency. He discounts the value creation for the giver.

Giver could have ulterior motives in giving a specific gift. These are not always selfish as seen from the examples. The son enjoying maths, my friend enjoying the book and the date enjoying the movie, without the possibility of having a chance to experience them in the first place without gifts.

Gifts as tool to signal your care and affection for the person to the society, should not be discarded 6. Since people voluntarily continue to give and receive gifts, does that mean it is pareto-optimal. If there was any way to improve the benefit, society would have already moved towards that equilibrium Jef Ely 7. Gift giving, they point out, has more value than how useful the present is to the recipient. Read our explainer on: rationality.

This site uses JavaScript. Please enable it to get the full experience. But in fact the economy is just the result of how you live your life and how everyone around you lives theirs….

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These cookies will be stored in your browser only with your consent. Anecdotal evidence would suggest that the holiday season is a boon for the economy.

After all, according to one theory popular in the early 80s, the black in Black Friday denotes the color of the ink that accountants use to designate profits. But gift exchange might not make actual economic sense. Joel Waldfogel pioneered the case against gift giving and its potential for economic destruction in when he asked 86 Yale undergraduate students how much they would have paid for the Christmas gifts they received.

Your growing collection of ugly sweaters represents billions of dollars in value being destroyed in the economy every year.