The Deadweight Loss of Christmas

There’s been a lot done about the deadweight loss of Christmas over the years (It really starts with Waldfogel in the 1993). We’ve all received those gives that, well, suck. You know what I’m talking about; the dancing/singing gorilla, the hideous sweater, any “executive” gift, etc. The economic argument is really simple, people would get more utility (happiness) out of the whole exercise if we gave cash and let them pick what they wanted for themselves. We could even go one step further and just do net transfers and save ourselves a lot of hassle.

Well, I got a phone call from somebody this year very apologetically saying they were sending a cheque for Christmas. This suited me just fine. I can buy whatever I want, and assuming I know myself better than they do, I can come closer to maximizing my utility. Combine this with the fact that they avoid the insanity of shopping at Christmas, and wins all around right?

If it is wins all round, and this person knows I’m a weird breed (an economist) why apologize? Why should we be embarrassed to send money as a gift? Might there be something important going on?

A gift is often an expression of how you feel about them and how well you know them. This works for somebody you know really well, but not for people you don’t know that well. This is also high risk. If you get it wrong, you reveal you don’t really know them that well. Not exactly the message you want to send.

Once upon a time, if you lived in a different city or had more free time than somebody else, gift giving would have made sense. You’d have access to different goods at different prices. Or you would have been able to devote more time to shopping than the person on the other end of the exchange. With internet shopping and research, this doesn’t hold up any more.

One of the things I’ve heard people saying about shopping for somebody (and I’ve done it myself) is you want to buy them something they wouldn’t normally get for themselves. There are two ways to interpret this. One, you’re asserting the person you’re buying for is a moron and you know better than they do what will make them happy. While this is certainly a possibility, the sentiment isn’t really a match for that ol’ Christmas spirit. While I generally think that humans aren’t the best at knowing what will lead to happiness, I’d at least like to think I have a better idea of what will make me happy than you do.

The other side of buying something for someone they wouldn’t normally get for themselves is one aspect of gift giving that does make a lot of sense, particularly for those with children or other responsibilities. Money given as a gift often (in my experience) gets spent on something boring and practical, paying down the mortgage, fixing the car, toilet paper, etc. By giving someone a gift that is purely about their own enjoyment (a day at the spa for example) is actually giving them permission to enjoy a pure luxury or to be a little bit selfish and not feel guilty about it. This can have value above and beyond the purchase price.

So instead of us exchanging gifts this next year, maybe we should just give each other permission to be selfish for a day without guilt. Just don’t ask me to wrap it.