Gift-giving and Economics

One of the podcasts I listen to during my commute is NPR's Planet Money podcast.

I fell behind over break, and was catching up today, so I just heard the December 27th edition on why some economists don't like gift-giving.

This isn't the first time I've come across the anti-gift giving sentiment of economists, either. I was sincerely puzzled when I first came across the sentiment, and I continue to be perplexed. I keep coming across economists advocating a theory of gift-giving on which instead of exchanging sweaters, DVDs, and the like, we should be giving each other cash.

Now, I should preface this post by acknowledging that I am not an economist, and I have not had any real exposure to economic theory (though Mankiw's "Principles of Economics" is sitting on my bookshelf next to Spivak's "Calculus" and Abelman and Sussman's "Structure and Interpretation of Computer Programs" in the space reserved for non-philosophy textbooks I intend to work through when I am able to find/make the time.

It seems to me that any theory of gift-giving which recommends that all gift-giving take the form of cash transfers is a pretty bad theory of gift-giving. As I understand it, the thought behind migrating to cash-gifts is something like this: If Jones spends $30 on a Christmas sweater for Smith, and Smith has no desire or use for that sweater (i.e. the sweater produces no utility for Smith), we have missed out on the chance for that $30 to increase the utility in the world, and instead we wasted that money and used up some resources (e.g. yarn and time). Better to have given that Smith that DVD Smith has been wanting, or, better yet, give Smith the power to choose the purchase(s) that maximize utility; the gift of cash.

A clear way to see the problem with this system is that, if Smith and Jones are good friends, they probably exchange gifts during the holidays. It is safe to say that it would be pretty ridiculous for them to each put $30 in an envelope and swap envelopes. So, if the best account of gift-giving is one that recommends cash exchanges, I'd take that to be, roughly, a condemnation of gift-giving.

It seems to me that there are a few ways to resist this conclusion, which is fortunate for those of us who like the practice of gift giving.

Way 1: The efficiency argument against gift-giving requires the assumption that Smith is better informed than Jones about Jones's preference ordering, and this assumption can be challenged. One of the best gifts I have ever received was a personalized book embosser that was given to me by family friends at my high school graduation. I did not know about customized book embossers prior to receiving one. Had someone told me about them, there is a decently high chance that I would not have placed a high priority on acquiring one. However, now, almost 10 years later, I still use it, and still think it was a great gift, and there is no way I would have been happier with whatever it is that I might have spend the equivalent amount of money on for myself.

This seems to me to bring out one of the distinctive values of gift-giving; the opportunity to enrich a friend's life or have a friend enrich your life by giving you something that you didn't even know you wanted. Note that, for someone who is good at picking out such gifts, the dead-weight loss would occur (I think) if they failed to give a gift, and instead just handed over some cash.

Way 2: Many gifts have sentimental value, but sentimental value can't attach to cash (at least, not without interfering with its role as currency. For instance, if you save the first bill you earned at a childhood lemonade stand, because of its sentimental value, you aren't able to spend that money while treating it as a keepsake. So, while the books my brother has given me as gifts can remain function both as literature and as store-houses of sentimental value, money really can't play that role.

This is, I imagine, one of the most common thoughts about what is missing from the picture advocated by the sorts of economists I've linked above. The sentimental element of gift-giving is a pretty glaring omission in the utility-exchange story (at least, it seems to be — if anyone knows otherwise, please let me know).

Way 3: It may be impermissible for someone to spend their own money to acquire certain types of items (frivolous/fun/luxury items), but not impermissible for them to receive those items as a gift. A lot of people in grad school, for instance, would have to be irresponsible to spend a sizable chunk of money getting themselves an ipod or a videogame or what have you. If they have the money to spend on that sort of thing, they really should put some of it into savings, or the like. But it is not irresponsible for them to accept an ipod or a videogame as a gift. The fact that it would be irresponsible for the person to splurge on something unnecessary/impractical for themselves does not mean that it would be bad or wrong for them to possess it. Gift-giving provides a way for people who couldn't responsibly treat themselves to occasionally get those sorts of treats.

One thing that is important to note is that both the NPR podcast and the article I linked indicate the enormous amounts of money that get sunk into our ritualized gift-giving. And nothing I've indicated here really defends the scale of our gift-giving practices or the huge numbers of gifts that don't fall under the category of preferred-but-unknown, sentimentally-valuable, or fun-enabling-without-being-irresponsible. For all I have said, it may be the case that we ought to tone down the practice a fair amount and focus on increasing the relative frequency of the particularly valuable modes of gift giving. But that conclusion is a far cry from the view that the real values of gift-giving are best promoted by handing over cold hard cash.