Avoid the Deadweight Loss of Christmas

Ah the Christmas season. Time to spend inordinate amounts of time finding Christmas gifts to your loved ones. Or not….

Pile of uneconomical gifts

Pile of uneconomical gifts

It turns out Yale Economist Joel Waldfogel has done the analysis and it simply does not make sense economically to give Christmas gifts but rather giving cash is the optimal strategy. His publication “The Deadweight Loss of Christmas” is a great read.

One of my favorite bloggers, Mark Perry, of Carpe Diem fame blogged about this (but did make concessions that straight cash giving may have problems that Waldogel’s model didnt account. His blog post on the subject is here.

I’ll quote Mark Perry’s summary:

The best outcome that gift-givers can achieve is to duplicate the choices that the gift-recipient would have made on his or her own with the cash-equivalent of the gift. In reality, it’s highly certain that many gifts given will not perfectly match the recipients’ own preferences. In those cases, the recipient will be worse off with the sub-optimal gift selected by the gift-giver than if the recipient was given cash and allowed to choose his or her own gift.

And I will provide my own summary: If gift giving is about maximizing the happiness of the gift recipient, then logically there is no better gift to give than cash since cash provides the exact match of a recipient’s desires (anything) to the giver’s ability to afford the gift.

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